ConvergEx To Pay $150M To Settle Fraud Case

The U.S. Securities and Exchange Commission said today [Dec 18] that subsidiaries of ConvergEx Group agreed to pay more than $107 million and admit wrongdoing to settle the SEC’s charges.

In a parallel action, the Department of Justice announced criminal charges against ConvergEx Group, a brokerage subsidiary, and the two former employees.

To resolve those charges, ConvergEx Group has agreed to pay $43.8 million in criminal penalties and restitution.

Two former ConvergEx employees, Jonathan Daspin, the head trader of the Bermuda subsidiary, and Thomas Lekargeren co-operated with the investigation and admitted to taking steps to conceal the practice of taking trading profits from customers.

Daspin agreed to pay a total of $1,111,550 in disgorgement and prejudgment interest [PDF of Daspin SEC order], and Lekargeren agreed to pay a total of $117,042 in disgorgement and prejudgment interest.

According to the SEC’s order instituting settled administrative proceedings, the ConvergEx brokerage firms represented to customers that they charge explicit commissions to execute equity trading orders.

The SEC said “they routinely routed orders, including orders for U.S. equities, to an offshore affiliate in Bermuda that executed them on a riskless basis and opportunistically boosted their profits by adding a mark-up or mark-down on the price of a security.”

“The offshore affiliate often consulted with the client-facing brokers to assess the risk of customer detection before taking the extra money on top of the disclosed commissions.

The mark-ups and mark-downs caused many customers to unknowingly pay more than double what they understood they were paying to have their orders executed.”

“Customers have a right to expect honesty from their brokers and accurate information in response to their inquiries,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement.

“These ConvergEx brokers misled their customers and failed to provide complete information about the costs they were charging.”

According to the SEC’s order, the ConvergEx brokerages involved in the scheme were G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC.

ConvergEx Global Markets Limited was a Bermuda broker-dealer, and ceased all trading activities in early 2012 and voluntarily relinquished its securities license with the Bermuda Monetary Authority in 2012.

The full SEC order issued today is below [PDF here]:

#BermudaBusiness #ConvergEx #InternationalCrime

Category: All, Business, Crime