Ex-Brokerage Chief|Accused of Hiding Fees

(CN) - The former head of a ConvergEx subsidiary faces SEC fraud charges, accused of charging brokerage customers hidden markups for stock trades through an offshore affiliate.

Khaled "Kal" Bassily, 50, was in charge of ConvergEx Execution Solutions LLC's Global Transition Management (GTM) group, which advertised itself as operating with a transparent fee structure, according to court records.

But the U.S. Securities and Exchange Commission (SEC) says in a lawsuit filed Tuesday that Bassily received millions of dollars in bonuses from 2006 to 2011 by deceiving customers about the "true costs of executing securities trades."

"Bassily's participation in this scheme included making and directing false statements and misleading half-truths about customers' true trade costs, coaching traders on the amount of hidden charges that could be taken without customers noticing, and encouraging the use of technological tools, false business cards, and other deceptive devices to hide the truth from customers," the SEC's lawsuit states. "The scheme resulted in millions of dollars in hidden charges, dwarfing the commissions that customers had negotiated and paid, and directly enriched Bassily."

The hidden charges were called "trading profits," or TP, and were added on top of commissions that customers paid, according to the complaint.

The SEC says GTM routinely routed orders to an offshore affiliate, which took hidden TP on trades.

"GTM's profitability largely depended on the hidden TP taken on trades for its customers," the 28-page lawsuit states. "Bassily knew that customers likely were unaware that they paid TP in addition to the agreed-upon commission and would fire GTM if they learned the truth."

Bassily's customers allegedly included charities, religious organizations and retirement funds.

One customer paid $600,000 in commissions for trades placed through GTM, but also paid $9.6 million in hidden TP without knowing, according to the complaint.

"Bassily often set TP goals for trades and pressured ConvergEx traders to meet those goals," the lawsuit states. "Bassily even authorized traders to take TP in an amount that resulted in the customer unnecessarily buying at the market high of the day and selling at the market low of the day."

Bassily was fired from ConvergEx in 2013, according to the SEC. Later that year, ConvergEx agreed to pay $150 million to settle civil and criminal charges for allegedly overcharging customers to execute traders.

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