Friday, August 15, 2014
The Securities and Exchange Commission yesterday 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.
The SEC alleges that the brokers purported to charge customers very low commission fees that were typically pennies or fractions of pennies per transaction, but in reality they were reporting false prices when executing the orders to purchase and sell securities on behalf of their customers.
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 surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000 and involved more than 36,000 transactions during a four-year period. Some fees were altered by more than 1000 percent of what was being told to 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.
Penalties and Prison
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. The brokers charged in the SEC’s complaint are Marek Leszczynski, Benjamin Chouchane, Gregory Reyftmann, and Henry Condron.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York indicted Leszczynski and Chouchane. Condron had already pled guilty to criminal charges. Chouchane was sentenced in to two years in prison on charges of conspiracy to commit securities fraud and wire fraud. Chouchane was also ordered to forfeit $5 million, to pay a $100 special assessment fee, and to make restitution in an amount to be fixed at a later date.
Marek Leszczynski, a former sales broker, was sentenced in Manhattan federal court to 18 months in prison on charges of conspiracy to commit securities fraud and wire fraud. In addition to the prison term, Leszczynski was also ordered to forfeit $1.5 million, to make restitution in the amount of $1.5 million, and to pay a $100 special assessment fee.
Linkbrokers has agreed to pay $14 million to settle the SEC’s charges.