A former senior executive and an ex-trader at brokerage firm ConvergEx have been charged with securities fraud by the US Justice Department for their part in a scheme that illegally increased execution fees paid by institutional clients.
Anthony Blumberg, former CEO of ConvergEx Global Markets, and Craig Marshall, a senior vice president responsible for trading at the unit, were charged with securities fraud, wire fraud and conspiracy to commit securities and wire fraud last week.
The US Securities and Exchange Commission (SEC) separately filed civil charges against Blumberg, also a former executive managing director of ConvergEx Group.
In December 2013, ConvergEx paid US$150 million to settle charges brought by the SEC and the US Justice Department that the broker had engaged in fraudulent order routing practices, executed orders at inflated prices via an offshore affiliate – Bermuda-based ConvergEx Global Markets – and provided false trade data to clients.
In addition, former ConvergEx employees Jonathan Daspin and Thomas Lekargeren pleaded guilty to criminal conduct.
ConvergEx and three brokerage subsidiaries routed orders to a ConvergEx Global Markets for execution on a riskless basis, then boosted profits by adding a mark-up or mark-down on the price of securities, including US equities.
The regulator found that the offshore affiliate consulted with the client-facing staff to assess the risk of customer detection before adding fees on top of the disclosed commissions, which resulted in some clients paying more than double for execution.
Clients – who believed they were trading through a conflict-free agency model – received false or misleading statements on fees and were not sufficiently informed about the practice of executing offshore.
The Justice Department said Blumberg, Marshall and others sent false transaction reports to clients from 2007 to 2011, with fabricated details regarding the transactions, including “falsified” information about number of shares involved in a fill, the time at which the fill was executed and the price at which shares were either purchased or sold.
The charges faced by Blumberg and Marshall were announced by the Justice Department, the Federal Bureau of Investigation and the US Postal Inspection Service.
Assistant Attorney General Leslie Caldwell said, “The Justice Department’s Criminal Division will bring to justice those who fleece investors in the financial markets, particularly high-level executives and sophisticated traders.”