FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged New York-based brokerage firm Linkbrokers Derivatives LLC for unlawfully taking secret profits of more than $18 million from customers by adding hidden markups and markdowns to their trades.
According to the SEC’s order instituting administrative proceedings, certain representatives on Linkbrokers’ cash equity desk defrauded customers by purporting to charge them very low commission fees, but in reality extracting fees that in some cases were more than 1,000 percent greater than represented. These brokers hid the true size of the fees they were collecting by misrepresenting the price at which they had bought or sold securities on behalf of their customers. The scheme was difficult for customers to detect because the brokers charged the markups and markdowns during times of market volatility in order to conceal the false prices they were reporting to customers.
Linkbrokers has agreed to pay $14 million to settle the SEC’s charges. The SEC previously charged four former brokers on the cash equities desk at Linkbrokers, and three of them later agreed to settle those charges by consenting to judgments ordering more than $4 million in disgorgement plus interest.
“Linkbrokers employees engaged in a devious and abusive trading scheme orchestrated to steal from the firm’s unsuspecting customers,” said Daniel M. Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit. “This settlement strips Linkbrokers of its remaining assets and allows those funds to be returned to harmed customers.”
According to the SEC’s order instituting a settled administrative proceeding against Linkbrokers, the scheme occurred from at least 2005 to February 2009 and involved more than 36,000 transactions. The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000. Linkbrokers secured additional illicit profits by stealing a portion of customers’ trades. When customers placed limit orders seeking to purchase or sell shares at a specified maximum or minimum price, the brokers filled the orders at the customers’ limit price but withheld that information from the customers. Instead, they monitored the movement in the price of the securities and purchased or sold portions of these positions back to the market, keeping the profit for the firm. The brokers then falsely reported to the customers that they could not fill the order at the limit price.
The SEC’s order, to which Linkbrokers consented without admitting or denying the findings, finds that the firm violated Section 15(c)(1) of the Securities Exchange Act of 1934 and requires Linkbrokers to pay $14 million in disgorgement. Linkbrokers ceased acting as a broker-dealer in April 2013 and will withdraw its registration.
The former brokers who previously agreed to settle the SEC’s charges are Benjamin Chouchane, Marek Leszczynski, and Henry Condron, who each also have pleaded guilty to criminal charges.
The SEC’s litigation continues against the fourth former broker, Gregory Reyftmann.
The SEC’s investigation, which is continuing, is being conducted by Market Abuse Unit staff A. Kristina Littman and Darren Boerner, and supervised by Mr. Hawke and Scott A. Thompson, an assistant director in the Market Abuse Unit. The SEC’s litigation is being handled by G. Jeffrey Boujoukos and John V. Donnelly in the Philadelphia Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.