November 21, 2014
November 21, 2014 — Many traders rely on complex algorithms and sophisticated technologies in an attempt to make the best trades for their firms and their clients. But when traders employ such means to artificially manipulate share prices, that crosses the line into securities fraud
. The Securities and Exchange Commission (SEC) will aggressively pursue those involved in high frequency trading manipulation.
To pursue those engaged in fraud in the securities market, Congress set up a whistleblower program as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The program authorizes awards for informants who alert the SEC to credible, specific and timely information about fraudulent securities schemes. Whistleblowers could receive from ten to thirty percent of the amount the government recovers, provided the amount exceeds $1 million. Awards are paid from an investor protection fund financed by monetary sanctions paid by violators to the SEC.
High Frequency Trading Firm Allegedly Engaged In Fraud To Manipulate Closing Prices
A New York high frequency trading firm has been sanctioned for allegedly attempting to manipulate the closing prices of thousands of NASDAQ stocks. During a six-month period, Athena Capital Research made a huge number of quickly placed trades in the last two seconds of nearly every trading day. The sanctions come in the SEC’s first high frequency trading manipulation case
. Athena will pay a $1 million penalty to resolve the charges against it.
Though Athena was not a large trading firm, between June and December 2009, Athena’s trading accounted for more than 70 percent of the total NASDAQ trading volume for certain stocks in the moments preceding the market close. Athena traded in the affected stocks only slightly at other times.
Athena’s operation involved the use of an algorithm with the code-name of Gravy. The algorithm allowed Athena to affect the closing price of stocks that it purchased or sold right at the end of the trading day. The crushing volume of Athena’s trading in the final seconds allowed the trading firm to artificially move the closing price of targeted stocks and overpower the market’s available liquidity.
Near the end of the trading day, Athena allegedly zeroed in on order imbalances that occur when orders to purchase shares of a certain stock exceed those to sell, or vice versa. Athena used additional algorithms that it referred to as “Collars” to make sure that its last-second orders would receive precedence over other orders when order imbalances took place. This in turn ensured that Athena’s orders would be executed at more favorable prices, allegedly allowing Athena to manipulate the market.
Whistleblowers Notify SEC Of Fraudulent Schemes To Manipulate Stock Prices
While Waters & Kraus was not working with a whistleblower on this SEC matter, we are representing tipsters in other instances of SEC fraud. If you have claims against your employer or anyone else engaged in securities fraud, email us
or call our qui tam attorneys at 855.784.0268 to learn more about our practice and how we can work together to notify the government about SEC fraud and abuse. Our qui tam lawyers, George Tankard
and Anne Izzo
in our East Coast office, are committed to advancing and protecting informants’ interests in whistleblower lawsuits.