In re EUGENE TERRACCIANO

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 82958 / March 28, 2018 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-18414 
 
 
In the Matter of 
 
EUGENE TERRACCIANO,  
 
Respondent. 
 
 
 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTIONS 15(b) AND 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
SECTION 203(f) OF THE INVESTMENT 
ADVISERS ACT OF 1940, AND SECTION 
9(b) OF THE INVESTMENT COMPANY 
ACT OF 1940 AND NOTICE OF HEARING 
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”), Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of 
the Investment Company Act of 1940 (“Investment Company Act”) against Eugene Terracciano 
(“Respondent” or “Terracciano”). 
 
II. 
 
After an investigation, the Division of Enforcement alleges that: 
 
SUMMARY 
This matter involves anti-money laundering (“AML”) compliance failures at Aegis Capital 
Corporation (“Aegis” or “the firm”) by Eugene Terracciano (“Terracciano”), who served as the 
firm’s AML Compliance Officer (“AML CO”) from September 2013 to approximately September 
2015.   
 
From September 2013 through early 2014, all while Terracciano was serving as Aegis’ 
AML CO, Aegis failed to file Suspicious Activity Reports (“SARs”) on hundreds of transactions 
when it knew, suspected, or had reason to suspect that the transactions involved the use of the 
broker-dealer to facilitate fraudulent activity or had no business or apparent lawful purpose.  Many 
of the transactions involved red flags of potential market manipulation, including high trading 

 2 
volume in companies with little or no business activity during a time of simultaneous promotional 
activity.  Aegis did not file SARs on these transactions even when it specifically identified AML 
red flags implicated by these transactions in its written supervisory procedures.   
 
Under Aegis’ written supervisory procedures, the firm’s AML CO (Terracciano) was 
responsible for filing SARs on the firm’s behalf.  Throughout the relevant period, Terracciano 
became aware of transactions that exhibited numerous AML red flags through alerts from Aegis’ 
clearing firms (hereinafter defined as “AML Alerts”).  Terracciano was the primary point of 
contact for the clearing firms as it related to suspicious activity.  Although the AML Alerts raised 
many red flags – including many red flags listed in Aegis’ written supervisory procedures as 
examples of suspicious activities – Terracciano did not file SARs on Aegis’ behalf regarding these 
transactions and did not produce a written analysis or otherwise demonstrate that he had considered 
filing SARs for these transactions.   
 
As a result of the foregoing, Terracciano willfully aided and abetted and caused Aegis’ 
violations of Exchange Act Section 17(a) and Rule 17a-8 thereunder. 
 
RESPONDENT 
 Eugene Terracciano, 55.  Terracciano served as Aegis’ AML CO from September 2013 
until approximately September 2015. 
   
OTHER RELEVANT ENTITIES 
 
 Aegis Capital Corporation is a dually-registered investment adviser and broker-dealer with 
multiple branches and is headquartered in New York, NY.  Aegis’ business consists of investment 
banking, venture capital, and debt market services as well as full-service retail and institutional 
advisory and brokerage services.  
 
FACTS 
A. Aegis’ Low Priced Securities Business 
1. During the relevant period, Aegis had various brokerage customers who transacted in 
low-priced securities.  Several of these customers did so through Delivery Versus 
Payment/Receive Versus Payment accounts (“DVP/RVP”).  In DVP/RVP accounts held 
at Aegis, the customer deposited their shares at another firm in a custodial account, and 
the sale transactions were effected through Aegis.  During the relevant period, Aegis had 
relationships with various clearing firms that assisted in effecting low-priced securities 
transactions. 
2. Aegis had customers at their branch offices who transacted in low-priced securities.  
Several of these customers were foreign financial institutions that effected transactions on 
behalf of their underlying customers, all of whom were unknown to Aegis. 

 3 
B. Aegis’ Anti-Money Laundering Compliance Program – Written Supervisory Procedures 
Concerning SARs and Specific Red Flags Related to Market Manipulations 
3. During the relevant period, Aegis had specific written supervisory procedures concerning 
compliance with its AML responsibilities.  Aegis’ written supervisory procedures 
expressly identified Aegis’ AML CO as the individual responsible for deciding whether 
Aegis needed to file a SAR.  Moreover, Aegis’ written supervisory procedures stated that 
all Aegis employees were obligated to “promptly report to the [AML CO] any known or 
suspected violations of anti-money laundering policies as well as other suspected 
violations or crimes.” 
4. Pursuant to 31 C.F.R. § 1023.320 (the “SAR Rule”), Aegis was required to file SARs for 
transactions by, at or through the firm that involved or aggregated at least $5,000 if Aegis 
knew, suspected, or had reason to suspect that, among other things, the transactions 
involved funds derived from illegal activity, had no business or apparent lawful purpose, 
or involved using Aegis to facilitate criminal activity.  Aegis explicitly cited the SAR 
Rule in its written supervisory procedures. 
5. Aegis, in its written supervisory procedures, expressly identified certain trading in low-
priced securities as suspicious activity that could warrant a SAR filing:   
Aegis will file [SARs] for transactions that may be indicative of 
money laundering activity.  Suspicious activities include a wide 
range of questionable activities; examples include trading that 
constitutes a substantial portion of all trading for the day in a 
particular security . . . [and] heavy trading in low-priced securities.  
 
(emphasis added.) 
 
6. Aegis, in its written supervisory procedures, also expressly identified specific AML red 
flags associated with low-priced securities transactions of which its employees should be 
aware.  These specific AML red flags – many of which were also described as red flags 
in industry notices issued by FINRA (e.g., FINRA Notice to Members 09-05 and NASD 
Notice to Members 02-21) – included the following:   
i. There is a sudden spike in investor demand for, coupled with a rising price in, a 
thinly-traded or low-priced security; 
ii. The issuer has been through several recent name changes, business combinations 
or recapitalizations, or the company’s officers are also officers of numerous 
similar companies;  
iii. The issuer’s SEC filings are not current, are incomplete, or nonexistent;  
iv. The customer appears to be acting as an agent for an undisclosed principal, but 
declines or is reluctant, without legitimate commercial reasons, to provide 
information or is otherwise evasive regarding that person or entity; 

 4 
v. The customer’s account has wire transfers that have no apparent business purpose 
to or from a country identified as a money laundering risk or a bank secrecy 
haven; and 
vi. The customer, for no apparent reason or in conjunction with other “red flags,” 
engages in transactions involving certain types of securities, such as penny stocks 
. . . which although legitimate, have been used in connection with fraudulent 
schemes and money laundering activity. 
C. Terracciano Failed to File SARs on Aegis’ Behalf Concerning Low-Priced Securities 
Transactions  
7. Terracciano – throughout the relevant period – failed to file SARs on Aegis’ behalf 
concerning low-priced securities transactions, and and did not produce a written analysis 
or otherwise demonstrate that he had considered filing SARs for these transactions.    
8. Terracciano failed to file SARs on Aegis’ behalf despite the fact that numerous low-
priced securities transactions effected through the firm exhibited several of the AML red 
flags that Aegis specifically identified in its written supervisory procedures. 
9. In particular, Terracciano failed to file SARs on transactions in which Aegis’ customers 
were:  
(i) selling large quantities of low-priced securities that comprised a significant 
percentage of the issuers’ daily trading volume and outstanding float;  
(ii) trading shares of issuers who had changed names and business lines;  
(iii) selling substantial shares of low-priced securities during periods of spikes in 
price and volume of the issuers’ securities and during paid promotional 
campaigns; and/or 
(iv) trading in shares of issuers’ that had little or no market activity until the 
promotions began. 
10. Terracciano failed to file SARs on Aegis’ behalf on low-priced securities transactions 
even when he received AML Alerts from its clearing firm about such suspicious 
transactions.   
11. These AML Alerts were sent from a clearing firm that Aegis hired in July 2012 and 
transitioned its clearing business to by December 2012 (the “New Clearing Firm”).   
12. Beginning in January 2013, the New Clearing Firm identified AML red flags in Aegis’ 
low-priced securities business and described them in AML Alerts that continued 
throughout Terracciano’s tenure as Aegis’ AML CO.  However, despite receiving these 
AML Alerts, Terracciano failed to file SARs on Aegis’ behalf and did not produce a 
written analysis or otherwise demonstrate that he had considered filing SARs for these 
transactions.  Nor did he follow up with others to learn why firm employees or Aegis’ 

 5 
trade surveillance system had not brought the suspicious transactions identified in the 
AML Alerts to his attention. 
13. Had Terracciano followed up to learn why suspicious transactions were not being brought 
to his attention through the firm’s own internal systems, he would have learned that the 
firm’s trade surveillance system did not analyze DVP/RVP transactions for suspicious 
activity.  Rather, he would have learned that these transactions were simply batch 
approved by the applicable Aegis personnel.   
D. Illustrative Examples of Transactions in which Terracciano Failed to File SARs on 
Aegis’ Behalf   
 
i. Customer C 
14. In early November 2013, while Terracciano was serving as Aegis’ AML CO, the New 
Clearing Firm sent an AML Alert to Aegis regarding Customer C.  Customer C had a 
DVP/RVP account at Aegis.   
15. On November 1, 2013, the New Clearing Firm sent Terracciano an AML Alert outlining 
Customer C’s suspicious trading in several low-priced securities, including Issuers D and 
E and noting that in approximately six months Customer C had sold approximately 1 
billion shares of low-priced securities through Aegis (emphasis added).  Both Issuers D 
and E were traded on OTC Link. 
16. In its AML Alert, the New Clearing Firm noted that Customer C, between September 17 
and October 31, 2013, had sold 31% of Issuer D’s outstanding shares and that the average 
daily trading volume had increased by approximately five fold during Customer C’s 
trading while the share price had dropped by approximately 90%.
 
 
17. Other evidence also indicates Issuer D may have been the subject of market 
manipulation.  In particular, Issuer D had experienced a rapid increase in the company’s 
stock price and volume that coincided with a promotional campaign that was inconsistent 
with the company’s financial performance as reflected in its SEC filings. 
18. With respect to Issuer E, the New Clearing Firm noted in its AML Alert that Issuer E had 
reported no revenues and that Customer C had sold over 60% of the company’s 
outstanding shares in two and a half months while the share price had dropped by 
approximately 50%. 
19. In addition to suspicious trading in Issuers D and E, the New Clearing Firm identified in 
the AML Alert sent to Terracciano similarly suspicious trading by Customer C in other 
low-priced securities including that Customer C – in one particular low-priced security – 
had sold more shares in three months than the issuer had outstanding. 
20. In the AML Alert, the New Clearing Firm requested a description of: (i) the due diligence 
performed on the customer; (ii) the due diligence performed on the securities Customer C 
liquidated in the account; and (iii) how Aegis was comfortable with the activity in the 
account.  

 6 
21. On November 5, 2013, Terracciano informed the New Clearing Firm that Aegis had 
reviewed Customer C’s account activity and its account opening paperwork and had 
decided to close the account, which it did, at least in part, because of the AML concerns 
outlined in the AML Alert.       
22. Despite these red flags associated with the trading by Customer C and closing the account 
due to the presence of suspicious activity, Terracciano did not file a SAR on Aegis’ 
behalf.  Moreover, Terracciano did not produce a written analysis or otherwise 
demonstrate that he had considered filing SARs for these transactions.  The fact that 
Customer C’s account was a DVP/RVP account did not relieve Aegis of its SAR filing 
obligations with respect to that account. 
ii. Customer D 
23. Another Aegis customer – Customer D – engaged in suspicious low-priced securities 
transactions for which Aegis did not file a SAR.  Customer D was a foreign financial 
institution with a DVP/RVP account at the firm and traded on behalf of underlying 
customers who were unknown to Aegis. 
24. In early June 2013, Customer D traded shares of Issuer G, which traded on OTC Link.  
Specifically, Between June 11 and 17, 2013 and during a paid promotional campaign for 
Issuer G, Customer D sold approximately 340,000 shares of Issuer G for proceeds of 
approximately $248,000.   
25. Moreover, another Aegis customer, Customer F, traded suspiciously in Issuer G at the 
same time as Customer D did.  In particular, Customer F sold approximately 760,000 
shares of Issuer G through Aegis during the promotion for proceeds of approximately 
$840,000.  Customer F was yet another foreign financial institution with a DVP/RVP 
account at the firm and traded on behalf of underlying customers who were unknown to 
Aegis. 
26. On December 2, 2013, while Terracciano was serving as the AML CO, the New Clearing 
Firm sent an AML Alert to Terracciano regarding Customer D’s trading in Issuer G, and 
wrote that the trading “exhibited characteristics commonly associated with a pump-and-
dump scheme; including paid stock promotion, a significant increase in both price and 
trading volume, followed by a precipitous drop in price and volume.” 
27. In the AML Alert, the New Clearing Firm also noted that Issuer G had changed both its 
name and business line (to a medical device company from an auto parts manufacturer), 
had no revenue and minimal trading volume until the stock promotion began, and that 
Customer D’s trading was similar to the suspicious trading by two other Aegis customers 
that had prompted the New Clearing Firm to request that those accounts be closed earlier 
in the year. 
28. Terracciano ordered that Customer D’s account be closed and acknowledged in an email 
that the compliance department did “not have the bandwidth to monitor the account.”  
This lack of compliance “bandwidth” was particularly relevant since Terracciano had 

 7 
learned that the branch manager who supervised the trading had not been conducting 
required reviews.    
29. Customer D’s accounts were ultimately closed, at least in part, because of the AML 
concerns associated with it.  Terracciano knew that the accounts trading in low-priced 
securities was a serious concern.  In fact, Terracciano did not finally act to close the 
accounts until he became aware that the branch manager had not, in fact, blocked the 
account from trading in low-priced securities.     
30. Despite these red flags associated with the trading by Customer D and at least one other 
Aegis customer in Issuer G as well as the closing of Customer D’s account due at least in 
part to concerns regarding low-priced securities transactions, Terracciano did not file a 
SAR on Aegis’ behalf.  Moreover, Terracciano did not produce a written analysis or 
otherwise demonstrate that he had considered filing SARs for these transactions.  The fact 
that the above described accounts were DVP/RVP accounts did not relieve Aegis of its 
SAR filing obligations with respect to those accounts. 
iii. November 18, 2013 DVP/RVP Update to Written Supervisory Procedures 
31. On November 18, 2013 – in response to deficiencies identified by the Commission’s 
Office of Compliance Inspections and Examinations  – Terracciano sent an email to all 
Aegis employees containing an update to Aegis’ written supervisory procedures that 
required low-priced securities transactions in DVP/RVP accounts to be subjected to the 
same due diligence as cash accounts when customers deposited physical securities. 
32. In particular, Aegis’ updated written supervisory procedures required Aegis’ DVP/RVP 
customers to submit Deposited Securities Request Questionnaires (“DSRQs”) for any 
low-priced securities it wished to trade and required Aegis to complete due diligence to 
identify red flags associated with the issuers of low-priced securities. 
33. DSRQs include, among other things, information about how the customer obtained a 
particular security, whether the customer is an affiliate of the issuer, and how many 
shares of the security the customer owns.  DSRQs had to be filled out by the customer 
and approved by the registered representative and a member of Aegis’ management 
before any trading was to occur.   
iv. Customer G 
34. Notwithstanding this update to Aegis’ written supervisory procedures, however, at least 
one of Aegis’ DVP/RVP customers (Customer G) traded suspiciously in low-priced 
securities and did so before the required DSRQ process had been completed.  Customer 
G, a New York corporation, is a microcap hedge fund that held a DVP/RVP account at 
Aegis. 
35. Between February 10, 2014 and February 20, 2014, Customer G sold 705.9 million 
shares of Issuer H through Aegis for proceeds of approximately $1.24 million.  Issuer H 
traded on OTC Link. 

 8 
36. On February 19, 2014, the New Clearing Firm sent an AML Alert that Terracciano 
received explaining that it was going to block Customer G’s account at market close 
because, among other reasons, Customer G had already sold 200 million shares of Issuer 
H that day and 2.7 billion shares of low-priced securities since it opened its account.   
37. In addition to the suspicious trading, there were other indicia that Issuer H may have been 
the subject of market manipulation.  For example, Issuer H experienced a large increase 
in price and volume that coincided with a promotional campaign.  Moreover, the 
company’s name had changed several times before becoming Issuer H.   
38. The AML Alert was not limited to the suspicious Issuer H trades; it also described 
suspicious trading by Customer G in over 1.6 billion shares of the securities of ten 
additional microcap issuers.  
39. The New Clearing Firm subsequently asked for an explanation of: (i) the due diligence 
Aegis performed on the customer; (ii) the due diligence Aegis performed on the securities 
liquidated in the account; and (iii) how Aegis was comfortable with the activity.    
40. Even after Aegis received the AML Alert concerning Customer G’s trading, Customer G 
continued to trade in Issuer H.  Indeed, on February 19 and 20, 2014, Customer G sold an 
additional 120 million shares of Issuer H. 
41. At the time of Customer G’s trading in February 2014, Aegis had already implemented 
its new DSRQ policy for trading in DVP/RVP accounts.  The DSRQ packet for Customer 
G’s trading in Issuer H, however, was not signed by any of the required Aegis personnel 
and, thus, Customer G should never have been allowed to liquidate any of its Issuer H 
shares through Aegis.  
42. Despite the significant trading by Customer G in Issuer H and the other red flags 
associated with the transactions, Terracciano did not file a SAR on Aegis’ behalf.  
Moreover, Terracciano did not produce a written analysis or otherwise demonstrate that he 
had considered filing SARs for these transactions.  The fact that Customer G’s account 
was a DVP/RVP account did not relieve Aegis of its SAR filing obligations with respect 
to that account. 
 
VIOLATIONS 
 
43. The Bank Secrecy Act (“BSA”), and implementing regulations promulgated by FinCEN, 
require that broker-dealers file SARs with FinCEN to report a transaction (or a pattern of 
transactions of which the transaction is a part) conducted or attempted by, at, or through the 
broker-dealer involving or aggregating to at least $5,000 that the broker-dealer knows, 
suspects, or has reason to suspect:  (1) involves funds derived from illegal activity or is 
conducted to disguise funds derived from illegal activities; (2) is designed to evade any 
requirement of the BSA; (3) has no business or apparent lawful purpose and the broker-
dealer knows of no reasonable explanation for the transaction after examining the available 

 9 
facts; or (4) involves use of the broker-dealer to facilitate criminal activity.  31 C.F.R. § 
1023.320(a)(2). 
44. Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, record-
keeping, and record retention requirements of the BSA.  The failure to file a SAR as 
required by the SAR Rule is a violation of Section 17(a) of the Exchange Act and Rule 
17a-8 thereunder. 
45. By engaging in the conduct described above, Aegis violated Section 17(a) of the Exchange 
Act and Rule 17a-8 thereunder. 
46. By engaging in the conduct described above, Terracciano willfully aided and abetted and 
caused Aegis’ violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 
 
III. 
 
In view of the allegations made by the Division of Enforcement, the Commission deems it 
necessary and appropriate in the public interest that public administrative and cease-and-desist 
proceedings be instituted to determine: 
 
A. Whether the allegations set forth in Section II hereof are true and, in connection 
therewith, to afford Respondent an opportunity to establish any defenses to such allegations;  
 
B. What, if any, remedial action is appropriate in the public interest against Respondent 
pursuant to Section 15(b) of the Exchange Act including, but not limited to, civil penalties pursuant 
to Section 21B of the Exchange Act;  
 
C. What, if any, remedial action is appropriate in the public interest against Respondent 
pursuant to Section 203(f) of the Advisers Act including, but not limited to, civil penalties pursuant 
to Section 203 of the Advisers Act;  
 
D. What, if any, remedial action is appropriate in the public interest against Respondent 
pursuant to Section 9(b) of the Investment Company Act including, but not limited to, civil 
penalties pursuant to Section 9 of the Investment Company Act; and   
 
E. Whether, pursuant to Section 21C of the Exchange Act, Respondent should be 
ordered to cease and desist from committing or causing violations of and any future violations of 
Exchange Act Section 17(a) and rule 17a-8 thereunder  and whether Respondent should be ordered 
to pay a civil penalty pursuant to Section 21B(a) of the Exchange Act. 
 
IV. 
 
IT IS ORDERED that a public hearing for purposes of taking evidence on the questions set 
forth in Section III hereof shall be convened not earlier than 30 days and not later than 60 days from 
service of this Order at a time and place to be fixed and before an Administrative Law Judge to be 
designated by further order as provided by Rule 110 of the Commission’s Rules of Practice, 17 
C.F.R. § 201.110. 

 10 
 
IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations 
contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 
of the Commission's Rules of Practice, 17 C.F.R. § 201.220. 
 
If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly 
notified, the Respondent may be deemed in default and the proceedings may be determined against 
him upon consideration of this Order, the allegations of which may be deemed to be true as 
provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission’s Rules of Practice, 17 C.F.R.  
§§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 
 
This Order shall be served forthwith upon Respondent as provided for in the Commission’s 
Rules of Practice.   
 
IT IS FURTHER ORDERED that, pursuant to Rule 360(a)(2) of the Commission’s Rules 
of Practice, 17 C.F.R. § 201.360(a)(2), the Administrative Law Judge shall issue an initial 
decision no later than 120 days from the occurrence of one of the following events:  (A) The 
completion of post-hearing briefing in a proceeding where the hearing has been completed; (B) 
Where the hearing officer has determined that no hearing is necessary, upon completion of 
briefing on a motion pursuant to Rule 250 of the Commission’s Rules of Practice, 17 C.F.R. § 
201.250; or (C) The determination by the hearing officer that a party is deemed to be in default 
under Rule 155 of the Commission’s Rules of Practice, 17 C.F.R. § 201.155 and no hearing is 
necessary.  
 
In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
in the performance of investigative or prosecuting functions in this or any factually related 
proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 
the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
provisions of Section 553 delaying the effective date of any final Commission action. 
 
 By the Commission. 
 
 
 
        Brent J. Fields 
        Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 82958 / March 28, 2018 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-18414 

 

 

In the Matter of 

 

EUGENE TERRACCIANO,  

 

Respondent. 

 

 

 

 

ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTIONS 15(b) AND 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

SECTION 203(f) OF THE INVESTMENT 

ADVISERS ACT OF 1940, AND SECTION 

9(b) OF THE INVESTMENT COMPANY 

ACT OF 1940 AND NOTICE OF HEARING 

  

I. 
 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of 

the Investment Company Act of 1940 (“Investment Company Act”) against Eugene Terracciano 

(“Respondent” or “Terracciano”). 

 

II. 

 

After an investigation, the Division of Enforcement alleges that: 

 

SUMMARY 

This matter involves anti-money laundering (“AML”) compliance failures at Aegis Capital 

Corporation (“Aegis” or “the firm”) by Eugene Terracciano (“Terracciano”), who served as the 

firm’s AML Compliance Officer (“AML CO”) from September 2013 to approximately September 

2015.   

 

From September 2013 through early 2014, all while Terracciano was serving as Aegis’ 

AML CO, Aegis failed to file Suspicious Activity Reports (“SARs”) on hundreds of transactions 

when it knew, suspected, or had reason to suspect that the transactions involved the use of the 

broker-dealer to facilitate fraudulent activity or had no business or apparent lawful purpose.  Many 

of the transactions involved red flags of potential market manipulation, including high trading 



 2 

volume in companies with little or no business activity during a time of simultaneous promotional 

activity.  Aegis did not file SARs on these transactions even when it specifically identified AML 

red flags implicated by these transactions in its written supervisory procedures.   

 

Under Aegis’ written supervisory procedures, the firm’s AML CO (Terracciano) was 

responsible for filing SARs on the firm’s behalf.  Throughout the relevant period, Terracciano 

became aware of transactions that exhibited numerous AML red flags through alerts from Aegis’ 

clearing firms (hereinafter defined as “AML Alerts”).  Terracciano was the primary point of 

contact for the clearing firms as it related to suspicious activity.  Although the AML Alerts raised 

many red flags – including many red flags listed in Aegis’ written supervisory procedures as 

examples of suspicious activities – Terracciano did not file SARs on Aegis’ behalf regarding these 

transactions and did not produce a written analysis or otherwise demonstrate that he had considered 

filing SARs for these transactions.   

 

As a result of the foregoing, Terracciano willfully aided and abetted and caused Aegis’ 

violations of Exchange Act Section 17(a) and Rule 17a-8 thereunder. 

 

RESPONDENT 

 Eugene Terracciano, 55.  Terracciano served as Aegis’ AML CO from September 2013 

until approximately September 2015. 

   

OTHER RELEVANT ENTITIES 

 

 Aegis Capital Corporation is a dually-registered investment adviser and broker-dealer with 

multiple branches and is headquartered in New York, NY.  Aegis’ business consists of investment 

banking, venture capital, and debt market services as well as full-service retail and institutional 

advisory and brokerage services.  

 

FACTS 

A. Aegis’ Low Priced Securities Business 

1. During the relevant period, Aegis had various brokerage customers who transacted in 

low-priced securities.  Several of these customers did so through Delivery Versus 

Payment/Receive Versus Payment accounts (“DVP/RVP”).  In DVP/RVP accounts held 

at Aegis, the customer deposited their shares at another firm in a custodial account, and 

the sale transactions were effected through Aegis.  During the relevant period, Aegis had 

relationships with various clearing firms that assisted in effecting low-priced securities 

transactions. 

2. Aegis had customers at their branch offices who transacted in low-priced securities.  

Several of these customers were foreign financial institutions that effected transactions on 

behalf of their underlying customers, all of whom were unknown to Aegis. 



 3 

B. Aegis’ Anti-Money Laundering Compliance Program – Written Supervisory Procedures 

Concerning SARs and Specific Red Flags Related to Market Manipulations 

3. During the relevant period, Aegis had specific written supervisory procedures concerning 

compliance with its AML responsibilities.  Aegis’ written supervisory procedures 

expressly identified Aegis’ AML CO as the individual responsible for deciding whether 

Aegis needed to file a SAR.  Moreover, Aegis’ written supervisory procedures stated that 

all Aegis employees were obligated to “promptly report to the [AML CO] any known or 

suspected violations of anti-money laundering policies as well as other suspected 

violations or crimes.” 

4. Pursuant to 31 C.F.R. § 1023.320 (the “SAR Rule”), Aegis was required to file SARs for 

transactions by, at or through the firm that involved or aggregated at least $5,000 if Aegis 

knew, suspected, or had reason to suspect that, among other things, the transactions 

involved funds derived from illegal activity, had no business or apparent lawful purpose, 

or involved using Aegis to facilitate criminal activity.  Aegis explicitly cited the SAR 

Rule in its written supervisory procedures. 

5. Aegis, in its written supervisory procedures, expressly identified certain trading in low-

priced securities as suspicious activity that could warrant a SAR filing:   

Aegis will file [SARs] for transactions that may be indicative of 

money laundering activity.  Suspicious activities include a wide 

range of questionable activities; examples include trading that 

constitutes a substantial portion of all trading for the day in a 

particular security . . . [and] heavy trading in low-priced securities.  

 

(emphasis added.) 

 

6. Aegis, in its written supervisory procedures, also expressly identified specific AML red 

flags associated with low-priced securities transactions of which its employees should be 

aware.  These specific AML red flags – many of which were also described as red flags 

in industry notices issued by FINRA (e.g., FINRA Notice to Members 09-05 and NASD 

Notice to Members 02-21) – included the following:   

i. There is a sudden spike in investor demand for, coupled with a rising price in, a 

thinly-traded or low-priced security; 

ii. The issuer has been through several recent name changes, business combinations 

or recapitalizations, or the company’s officers are also officers of numerous 

similar companies;  

iii. The issuer’s SEC filings are not current, are incomplete, or nonexistent;  

iv. The customer appears to be acting as an agent for an undisclosed principal, but 

declines or is reluctant, without legitimate commercial reasons, to provide 

information or is otherwise evasive regarding that person or entity; 



 4 

v. The customer’s account has wire transfers that have no apparent business purpose 

to or from a country identified as a money laundering risk or a bank secrecy 

haven; and 

vi. The customer, for no apparent reason or in conjunction with other “red flags,” 

engages in transactions involving certain types of securities, such as penny stocks 

. . . which although legitimate, have been used in connection with fraudulent 

schemes and money laundering activity. 

C. Terracciano Failed to File SARs on Aegis’ Behalf Concerning Low-Priced Securities 

Transactions  

7. Terracciano – throughout the relevant period – failed to file SARs on Aegis’ behalf 

concerning low-priced securities transactions, and and did not produce a written analysis 

or otherwise demonstrate that he had considered filing SARs for these transactions.    

8. Terracciano failed to file SARs on Aegis’ behalf despite the fact that numerous low-

priced securities transactions effected through the firm exhibited several of the AML red 

flags that Aegis specifically identified in its written supervisory procedures. 

9. In particular, Terracciano failed to file SARs on transactions in which Aegis’ customers 

were:  

(i) selling large quantities of low-priced securities that comprised a significant 

percentage of the issuers’ daily trading volume and outstanding float;  

(ii) trading shares of issuers who had changed names and business lines;  

(iii) selling substantial shares of low-priced securities during periods of spikes in 

price and volume of the issuers’ securities and during paid promotional 

campaigns; and/or 

(iv) trading in shares of issuers’ that had little or no market activity until the 

promotions began. 

10. Terracciano failed to file SARs on Aegis’ behalf on low-priced securities transactions 

even when he received AML Alerts from its clearing firm about such suspicious 

transactions.   

11. These AML Alerts were sent from a clearing firm that Aegis hired in July 2012 and 

transitioned its clearing business to by December 2012 (the “New Clearing Firm”).   

12. Beginning in January 2013, the New Clearing Firm identified AML red flags in Aegis’ 

low-priced securities business and described them in AML Alerts that continued 

throughout Terracciano’s tenure as Aegis’ AML CO.  However, despite receiving these 

AML Alerts, Terracciano failed to file SARs on Aegis’ behalf and did not produce a 

written analysis or otherwise demonstrate that he had considered filing SARs for these 

transactions.  Nor did he follow up with others to learn why firm employees or Aegis’ 



 5 

trade surveillance system had not brought the suspicious transactions identified in the 

AML Alerts to his attention. 

13. Had Terracciano followed up to learn why suspicious transactions were not being brought 

to his attention through the firm’s own internal systems, he would have learned that the 

firm’s trade surveillance system did not analyze DVP/RVP transactions for suspicious 

activity.  Rather, he would have learned that these transactions were simply batch 

approved by the applicable Aegis personnel.   

D. Illustrative Examples of Transactions in which Terracciano Failed to File SARs on 

Aegis’ Behalf   

 

i. Customer C 

14. In early November 2013, while Terracciano was serving as Aegis’ AML CO, the New 

Clearing Firm sent an AML Alert to Aegis regarding Customer C.  Customer C had a 

DVP/RVP account at Aegis.   

15. On November 1, 2013, the New Clearing Firm sent Terracciano an AML Alert outlining 

Customer C’s suspicious trading in several low-priced securities, including Issuers D and 

E and noting that in approximately six months Customer C had sold approximately 1 

billion shares of low-priced securities through Aegis (emphasis added).  Both Issuers D 

and E were traded on OTC Link. 

16. In its AML Alert, the New Clearing Firm noted that Customer C, between September 17 

and October 31, 2013, had sold 31% of Issuer D’s outstanding shares and that the average 

daily trading volume had increased by approximately five fold during Customer C’s 

trading while the share price had dropped by approximately 90%.  

17. Other evidence also indicates Issuer D may have been the subject of market 

manipulation.  In particular, Issuer D had experienced a rapid increase in the company’s 

stock price and volume that coincided with a promotional campaign that was inconsistent 

with the company’s financial performance as reflected in its SEC filings. 

18. With respect to Issuer E, the New Clearing Firm noted in its AML Alert that Issuer E had 

reported no revenues and that Customer C had sold over 60% of the company’s 

outstanding shares in two and a half months while the share price had dropped by 

approximately 50%. 

19. In addition to suspicious trading in Issuers D and E, the New Clearing Firm identified in 

the AML Alert sent to Terracciano similarly suspicious trading by Customer C in other 

low-priced securities including that Customer C – in one particular low-priced security – 

had sold more shares in three months than the issuer had outstanding. 

20. In the AML Alert, the New Clearing Firm requested a description of: (i) the due diligence 

performed on the customer; (ii) the due diligence performed on the securities Customer C 

liquidated in the account; and (iii) how Aegis was comfortable with the activity in the 

account.  



 6 

21. On November 5, 2013, Terracciano informed the New Clearing Firm that Aegis had 

reviewed Customer C’s account activity and its account opening paperwork and had 

decided to close the account, which it did, at least in part, because of the AML concerns 

outlined in the AML Alert.       

22. Despite these red flags associated with the trading by Customer C and closing the account 

due to the presence of suspicious activity, Terracciano did not file a SAR on Aegis’ 

behalf.  Moreover, Terracciano did not produce a written analysis or otherwise 

demonstrate that he had considered filing SARs for these transactions.  The fact that 

Customer C’s account was a DVP/RVP account did not relieve Aegis of its SAR filing 

obligations with respect to that account. 

ii. Customer D 

23. Another Aegis customer – Customer D – engaged in suspicious low-priced securities 

transactions for which Aegis did not file a SAR.  Customer D was a foreign financial 

institution with a DVP/RVP account at the firm and traded on behalf of underlying 

customers who were unknown to Aegis. 

24. In early June 2013, Customer D traded shares of Issuer G, which traded on OTC Link.  

Specifically, Between June 11 and 17, 2013 and during a paid promotional campaign for 

Issuer G, Customer D sold approximately 340,000 shares of Issuer G for proceeds of 

approximately $248,000.   

25. Moreover, another Aegis customer, Customer F, traded suspiciously in Issuer G at the 

same time as Customer D did.  In particular, Customer F sold approximately 760,000 

shares of Issuer G through Aegis during the promotion for proceeds of approximately 

$840,000.  Customer F was yet another foreign financial institution with a DVP/RVP 

account at the firm and traded on behalf of underlying customers who were unknown to 

Aegis. 

26. On December 2, 2013, while Terracciano was serving as the AML CO, the New Clearing 

Firm sent an AML Alert to Terracciano regarding Customer D’s trading in Issuer G, and 

wrote that the trading “exhibited characteristics commonly associated with a pump-and-

dump scheme; including paid stock promotion, a significant increase in both price and 

trading volume, followed by a precipitous drop in price and volume.” 

27. In the AML Alert, the New Clearing Firm also noted that Issuer G had changed both its 

name and business line (to a medical device company from an auto parts manufacturer), 

had no revenue and minimal trading volume until the stock promotion began, and that 

Customer D’s trading was similar to the suspicious trading by two other Aegis customers 

that had prompted the New Clearing Firm to request that those accounts be closed earlier 

in the year. 

28. Terracciano ordered that Customer D’s account be closed and acknowledged in an email 

that the compliance department did “not have the bandwidth to monitor the account.”  

This lack of compliance “bandwidth” was particularly relevant since Terracciano had 



 7 

learned that the branch manager who supervised the trading had not been conducting 

required reviews.    

29. Customer D’s accounts were ultimately closed, at least in part, because of the AML 

concerns associated with it.  Terracciano knew that the accounts trading in low-priced 

securities was a serious concern.  In fact, Terracciano did not finally act to close the 

accounts until he became aware that the branch manager had not, in fact, blocked the 

account from trading in low-priced securities.     

30. Despite these red flags associated with the trading by Customer D and at least one other 

Aegis customer in Issuer G as well as the closing of Customer D’s account due at least in 

part to concerns regarding low-priced securities transactions, Terracciano did not file a 

SAR on Aegis’ behalf.  Moreover, Terracciano did not produce a written analysis or 

otherwise demonstrate that he had considered filing SARs for these transactions.  The fact 

that the above described accounts were DVP/RVP accounts did not relieve Aegis of its 

SAR filing obligations with respect to those accounts. 

iii. November 18, 2013 DVP/RVP Update to Written Supervisory Procedures 

31. On November 18, 2013 – in response to deficiencies identified by the Commission’s 

Office of Compliance Inspections and Examinations  – Terracciano sent an email to all 

Aegis employees containing an update to Aegis’ written supervisory procedures that 

required low-priced securities transactions in DVP/RVP accounts to be subjected to the 

same due diligence as cash accounts when customers deposited physical securities. 

32. In particular, Aegis’ updated written supervisory procedures required Aegis’ DVP/RVP 

customers to submit Deposited Securities Request Questionnaires (“DSRQs”) for any 

low-priced securities it wished to trade and required Aegis to complete due diligence to 

identify red flags associated with the issuers of low-priced securities. 

33. DSRQs include, among other things, information about how the customer obtained a 

particular security, whether the customer is an affiliate of the issuer, and how many 

shares of the security the customer owns.  DSRQs had to be filled out by the customer 

and approved by the registered representative and a member of Aegis’ management 

before any trading was to occur.   

iv. Customer G 

34. Notwithstanding this update to Aegis’ written supervisory procedures, however, at least 

one of Aegis’ DVP/RVP customers (Customer G) traded suspiciously in low-priced 

securities and did so before the required DSRQ process had been completed.  Customer 

G, a New York corporation, is a microcap hedge fund that held a DVP/RVP account at 

Aegis. 

35. Between February 10, 2014 and February 20, 2014, Customer G sold 705.9 million 

shares of Issuer H through Aegis for proceeds of approximately $1.24 million.  Issuer H 

traded on OTC Link. 



 8 

36. On February 19, 2014, the New Clearing Firm sent an AML Alert that Terracciano 

received explaining that it was going to block Customer G’s account at market close 

because, among other reasons, Customer G had already sold 200 million shares of Issuer 

H that day and 2.7 billion shares of low-priced securities since it opened its account.   

37. In addition to the suspicious trading, there were other indicia that Issuer H may have been 

the subject of market manipulation.  For example, Issuer H experienced a large increase 

in price and volume that coincided with a promotional campaign.  Moreover, the 

company’s name had changed several times before becoming Issuer H.   

38. The AML Alert was not limited to the suspicious Issuer H trades; it also described 

suspicious trading by Customer G in over 1.6 billion shares of the securities of ten 

additional microcap issuers.  

39. The New Clearing Firm subsequently asked for an explanation of: (i) the due diligence 

Aegis performed on the customer; (ii) the due diligence Aegis performed on the securities 

liquidated in the account; and (iii) how Aegis was comfortable with the activity.    

40. Even after Aegis received the AML Alert concerning Customer G’s trading, Customer G 

continued to trade in Issuer H.  Indeed, on February 19 and 20, 2014, Customer G sold an 

additional 120 million shares of Issuer H. 

41. At the time of Customer G’s trading in February 2014, Aegis had already implemented 

its new DSRQ policy for trading in DVP/RVP accounts.  The DSRQ packet for Customer 

G’s trading in Issuer H, however, was not signed by any of the required Aegis personnel 

and, thus, Customer G should never have been allowed to liquidate any of its Issuer H 

shares through Aegis.  

42. Despite the significant trading by Customer G in Issuer H and the other red flags 

associated with the transactions, Terracciano did not file a SAR on Aegis’ behalf.  

Moreover, Terracciano did not produce a written analysis or otherwise demonstrate that he 

had considered filing SARs for these transactions.  The fact that Customer G’s account 

was a DVP/RVP account did not relieve Aegis of its SAR filing obligations with respect 

to that account. 

 

VIOLATIONS 

 

43. The Bank Secrecy Act (“BSA”), and implementing regulations promulgated by FinCEN, 

require that broker-dealers file SARs with FinCEN to report a transaction (or a pattern of 

transactions of which the transaction is a part) conducted or attempted by, at, or through the 

broker-dealer involving or aggregating to at least $5,000 that the broker-dealer knows, 

suspects, or has reason to suspect:  (1) involves funds derived from illegal activity or is 

conducted to disguise funds derived from illegal activities; (2) is designed to evade any 

requirement of the BSA; (3) has no business or apparent lawful purpose and the broker-

dealer knows of no reasonable explanation for the transaction after examining the available 



 9 

facts; or (4) involves use of the broker-dealer to facilitate criminal activity.  31 C.F.R. § 

1023.320(a)(2). 

44. Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, record-

keeping, and record retention requirements of the BSA.  The failure to file a SAR as 

required by the SAR Rule is a violation of Section 17(a) of the Exchange Act and Rule 

17a-8 thereunder. 

45. By engaging in the conduct described above, Aegis violated Section 17(a) of the Exchange 

Act and Rule 17a-8 thereunder. 

46. By engaging in the conduct described above, Terracciano willfully aided and abetted and 

caused Aegis’ violations of Section 17(a) of the Exchange Act and Rule 17a-8 thereunder. 

 

III. 

 

In view of the allegations made by the Division of Enforcement, the Commission deems it 

necessary and appropriate in the public interest that public administrative and cease-and-desist 

proceedings be instituted to determine: 

 

A. Whether the allegations set forth in Section II hereof are true and, in connection 

therewith, to afford Respondent an opportunity to establish any defenses to such allegations;  

 

B. What, if any, remedial action is appropriate in the public interest against Respondent 

pursuant to Section 15(b) of the Exchange Act including, but not limited to, civil penalties pursuant 

to Section 21B of the Exchange Act;  

 

C. What, if any, remedial action is appropriate in the public interest against Respondent 

pursuant to Section 203(f) of the Advisers Act including, but not limited to, civil penalties pursuant 

to Section 203 of the Advisers Act;  

 

D. What, if any, remedial action is appropriate in the public interest against Respondent 

pursuant to Section 9(b) of the Investment Company Act including, but not limited to, civil 

penalties pursuant to Section 9 of the Investment Company Act; and   

 

E. Whether, pursuant to Section 21C of the Exchange Act, Respondent should be 

ordered to cease and desist from committing or causing violations of and any future violations of 

Exchange Act Section 17(a) and rule 17a-8 thereunder  and whether Respondent should be ordered 

to pay a civil penalty pursuant to Section 21B(a) of the Exchange Act. 

 

IV. 

 

IT IS ORDERED that a public hearing for purposes of taking evidence on the questions set 

forth in Section III hereof shall be convened not earlier than 30 days and not later than 60 days from 

service of this Order at a time and place to be fixed and before an Administrative Law Judge to be 

designated by further order as provided by Rule 110 of the Commission’s Rules of Practice, 17 

C.F.R. § 201.110. 



 10 

 

IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations 

contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 

of the Commission's Rules of Practice, 17 C.F.R. § 201.220. 

 

If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly 

notified, the Respondent may be deemed in default and the proceedings may be determined against 

him upon consideration of this Order, the allegations of which may be deemed to be true as 

provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission’s Rules of Practice, 17 C.F.R.  

§§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 

 

This Order shall be served forthwith upon Respondent as provided for in the Commission’s 

Rules of Practice.   

 

IT IS FURTHER ORDERED that, pursuant to Rule 360(a)(2) of the Commission’s Rules 

of Practice, 17 C.F.R. § 201.360(a)(2), the Administrative Law Judge shall issue an initial 

decision no later than 120 days from the occurrence of one of the following events:  (A) The 

completion of post-hearing briefing in a proceeding where the hearing has been completed; (B) 

Where the hearing officer has determined that no hearing is necessary, upon completion of 

briefing on a motion pursuant to Rule 250 of the Commission’s Rules of Practice, 17 C.F.R. § 

201.250; or (C) The determination by the hearing officer that a party is deemed to be in default 

under Rule 155 of the Commission’s Rules of Practice, 17 C.F.R. § 201.155 and no hearing is 

necessary.  

 

In the absence of an appropriate waiver, no officer or employee of the Commission engaged 

in the performance of investigative or prosecuting functions in this or any factually related 

proceeding will be permitted to participate or advise in the decision of this matter, except as witness 

or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 

the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 

provisions of Section 553 delaying the effective date of any final Commission action. 

 

 By the Commission. 

 

 

 

        Brent J. Fields 

        Secretary