US broking firms settle with SEC for $70 million over illegal trades
05 Mar 2009
Fourteen trading firms, including subsidiaries of some of Wall Street's top banks, yesterday agreed to pay a total of nearly $70 million to settle civil charges that included allegations they "traded ahead" of clients for their own benefit.
Allegations of improper trading by Wall Street firms have long been the subject of investigations by regulators. In a high-profile case in 2004, five of the largest trading firms on the New York Stock Exchange floor agreed to pay about $240 million to settle allegations of trading irregularities.
The settlements announced yesterday by the US Securities and Exchange Commission (SEC) involved violations that allegedly occurred from 1999-2005 on the American Stock Exchange, the Chicago Board Options Exchange, the Philadelphia Stock Exchange, and the Chicago Stock Exchange.
The SEC charged the firms with violating their obligation to serve public customer orders ahead of their own proprietary interests by trading ahead of customer orders placed or positioning the firms' own accounts between customer orders. The firms are supposed to match customer orders with each other before being matched with proprietary orders. By completing proprietary trades ahead of the customer trades, the customers' trades were then completed at inferior prices, costing them millions of dollars, the SEC alleged.
"These firms violated the public trust by abusing the privileged position they had as specialists on the various exchanges," James Clarkson, acting director of the SEC's New York regional office, claimed. He added that the SEC has "no tolerance for unscrupulous trading practices".
All the firms settled without admitting or denying wrongdoing. Among those settling were Goldman Sachs Execution & Clearing and SLK-Hull Derivatives, which Goldman purchased in 2000. Other parties to the settlement included Automated Trading Desk Specialists, since acquired by Citigroup, E*Trade Capital Markets, and Susquehanna Investment Services.
E*Trade Capital Markets LLC will pay the stiffest sanction, $33.9 million including forfeiture of profits and fines, the SEC said. Its trades ''disadvantaged'' customers by $28.3 million, the SEC said in a complaint filed today at federal court in Manhattan. Susquehanna International Group LLP, based in the Philadelphia suburb of Bala Cynwyd, Pennsylvania, will pay $7.57 million.
Improper trades by Goldman Sachs Execution & Clearing LP and SLK-Hull Derivatives LLC, which New York-based Goldman Sachs purchased in 2000, cost investors about $6 million, the SEC said in its complaint. The firms will forfeit $7.2 million.