January 20, 2014 — Investors trust their brokers to execute their trades in an ethical manner. When instead, brokerage firms actually steal from the clients who rely on them, they should be reported and stopped. The securities fraud whistleblower program set up by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 provides for rewards to informants who notify and collaborate with the Securities and Exchange Commission on financial fraud schemes. Tipsters are entitled to as much as thirty percent of the amount recovered by the government, provided that amount tops $1 million.
Convergex Group and Former Bermuda Subsidiary to Pay Over $30 Million in Penalties, Plus Restitution
One of ConvergEx Group LLC’s brokerage subsidiaries has pleaded guilty to charges of securities fraud. ConvergEx Group has consented to pay $43.8 million in criminal penalties and restitution to resolve the matter with the U.S. Department of Justice (DOJ). ConvergEx Global Markets Limited (CGM Limited), formerly a Bermuda broker-dealer, will also plead guilty, with CGM Limited and ConvergEx Group consenting to pay an $18 million criminal penalty, to forfeit $12.8 million and to pay an additional $12.8 million to the firm’s defrauded clients.
As part of the scam, ConvergEx Group broker-dealers who offered agency brokerage services for a commission routinely routed securities orders through CGM Limited in Bermuda so mark ups and mark downs could be taken. A mark-up is an additional amount the client pays to buy a security, while a mark-down is a reduction in the amount the client receives when a security is sold. Rather than use the terms “mark-up” and “mark-down,” however, ConvergEx employees referred to the practice as “trading profits,” or “TP,” or “spread.”
To conceal the spread from brokerage firm clients, sales traders at a ConvergEx Group subsidiary in New York and CGM Limited traders provided clients with phony transaction reports containing fabricated details concerning the execution orders. According to the DOJ, the reports were created with data from transactions for others that occurred on the same date as the trades CGM Limited executed for its clients. Altogether, CGM Limited skimmed $12.8 million in trading profits from its clients after providing them with the fabricated trade statements.
Some traders with the firm also devised a way to continue with the scam, even for clients who instructed the firm to provide immediate data feed showing the details of trades that CGM Limited made in offshore markets using foreign brokers. The client’s instructions would have thwarted CGM Limited’s traders’ ability to take trading profits. But some traders temporarily turned off real time feed for their client’s orders and took the trading spread during that time. If clients asked why they weren’t getting real-time data, the issue was blamed on “IT” problems.
Whistleblowers Alert Government to Brokerage Firm Misconduct
Brokerage firm employees who uncover illegal schemes that defraud clients deserve to understand the Dodd-Frank whistleblower program before contacting the government. The securities fraud lawyers at Waters & Kraus have the experience needed to safeguard whistleblowers’ rights in instances of financial fraud. Contact us or call our qui tam attorneys at 855.784.0268 to discuss how we can help you do the right thing.
