A New York brokerage and three of its executives HAVE agreed to pay more than $6 million to regulators and exchanges to settle allegations they allowed some foreign traders to manipulate U.S. securities repeatedly through accounts the firm controlled.
Hold Brothers On-Line Investment Services LLC failed to investigate “red flags” that should have alerted the firm about the manipulative trading by certain overseas traders, the Securities and Exchange Commission alleged in an administrative complaint.
Starting at some point before January 2009 and continuing through September 2010, the traders used an illegal practice known as “layering,” where a trader places orders to encourage others to buy or sell at an artificial price and then later cancels the original order, the SEC said.
In settling, Hold Brothers agreed to pay $2.5 billion in fines, restitution and interest to the SEC and a combined $3.4 million to the
Financial Industry Regulatory Authority Inc. and four U.S. exchanges, regulators said. The parties neither admitted nor denied the allegations.
Additionally, Hold Brothers president and co-founder Steve Hold, former compliance chief Robert Vallone and William Tobias, who is listed as an associated person, each will pay a $75,000 fine to the SEC, the commission said.
“Manipulation, whether executed by e-mail, instant message, or multiple phantom orders, is still manipulation,” said SEC enforcement director Robert Khuzami. “Traders and the firms that provide them market access should not labor under the illusion that illegally layering orders amidst voluminous trading data will somehow allow them to evade detection by the SEC.”
Martin Kaplan, a lawyer at Gusrae Kaplan Nusbaum PLLC, who represents all the parties except for Mr. Vallone, said his clients were pleased to have resolved these “complicated matters.”
“At the time of the events that caused these regulatory concerns, Hold Brothers had in excess of 1,000 foreign traders,” Mr. Kaplan said in a statement. “The wrongful-trading conduct was done by a few of these traders.”
Mr. Vallone did not return a call seeking comment.
The four markets with which Hold Brothers and the three individuals settled are NYSE Arca Inc., Nasdaq Stock Market LLC, Nasdaq OMX BX Inc. and BATS Exchange Inc.
