U.S. regulators have fined New York City-based investment firm Oppenheimer and Co., Inc. US$1.4 million for selling shares in unregistered penny stocks and for inadequate anti-money laundering (AML) controls.

The Financial Industry Regulatory Authority (FINRA) said Tueday it has fined the firm US$1,425,000 for the sale of unregistered penny stocks, and for failing to have an adequate AML compliance program to detect and report suspicious penny stock transactions.

Along with the fine, Oppenheimer is also required to retain an independent consultant to conduct a comprehensive review of its penny stock and AML policies, systems and procedures. The firm agreed to the sanctions to resolve the charges, without admitting or denying the allegations.

FINRA found that from Aug. 19, 2008, to Sept. 20, 2010, Oppenheimer sold more than a billion shares of 20 penny stocks without registration, or an exemption. These trades had additional ‘red flags’ that should have prompted further review to determine whether the securities were registered, FINRA says. It also found that the firm’s systems and procedures governing penny stock transactions were inadequate, and were unable to determine whether stocks were restricted or freely tradable.

The regulator also found that Oppenheimer’s AML program did not focus on securities transactions and therefore failed to monitor patterns of suspicious activity associated with the penny stock trades. Additionally, it says Oppenheimer failed to conduct adequate due diligence on a correspondent account for a customer that was a broker-dealer in the Bahamas.

“Broker-dealers are required by federal securities laws and FINRA rules to monitor customers’ accounts so that those accounts are not used for illegal activities, such as money laundering and penny stock schemes that can cause considerable harm to investors,” said Brad Bennett, FINRA’s executive vice president and head of enforcement. “If Oppenheimer had an adequate AML and supervisory program in place, it would have made further inquiry into the penny stock sales that were the basis of this action.”