MANHATTAN - Three brokers face parallel charges from federal prosecutors and the Securities and Exchange Commission for allegedly overcharging customers by $18.7 million.
One of the three, Henry Condron, pleaded already guilty to securities and fraud charges, the agencies say. The 33-year-old Manhattan resident was a sales trader and middle-office assistant on the cash desk of an unnamed broker-dealer.
Prosecutors say he entered orders received from the sales brokers and ensured the orders were executed.
The trio did so to earn "illegitimate and illegal trading profits" for their employer, a Manhattan broker-dealer that is headquartered in London, prosecutors say.
They themselves allegedly earned $15.6 million in bonuses while working for the firm, and prosecutors say some of that amount can be attributed to their fraud.
A fourth alleged co-conspirator, Gregory Reyftmann, is named in the SEC complaint but has not been charged with a criminal action. He allegedly supervised the other three.
"The SEC alleges that the brokers purported to charge customers very low commission fees that were typically pennies or fractions of pennies per transaction, but in reality they were reporting false prices when executing the orders to purchase and sell securities on behalf of their customers," according to a statement from the agency. "The brokers made their scheme especially difficult to detect because they deceptively charged the markups and markdowns during times of market volatility in order to conceal the fraudulent nature of the prices they were reporting to their customers. The surreptitiously embedded markups and markdowns ranged from a few dollars to $228,000 and involved more than 36,000 transactions during a four-year period. Some fees were altered by more than 1000 percent of what was being told to customers."
When customers placed limit orders seeking to purchase shares at a specified maximum price, the brokers filled the order at the customer's limit price but occasionally sold some of that order back to the market to boost company profits, according to the complaint.
They then lied to the customer that they could not fill the order at the limit price.
All four individuals allegedly worked at the firm's cash desk, executing trades in U.S. and Canadian stocks. Most of their customers were large foreign institutions and foreign banks, according to the complaint.
The SEC says the scheme operated from 2005 to 2009. The government tacks another year onto its claims, saying the scheme ended in November 2010.
Interdealer brokers typically operate only as agents and execute large volumes of securities trades on behalf of customers for low commissions, according to the SEC.
It seeks disgorgement, interest, penalties and an injunction for violation of the Securities Exchange Act. The SEC notes that its investigation is continuing under the stewardship of Assistant Director Mary Hansen in Philadelphia and others.
For the criminal action, Condron up to 30 years in prison, as well as a fine of $5 million or twice the gross gain or loss derived from the crime for the securities fraud charge. He also agreed to forfeit all proceeds traceable to the commission of the offenses.
Leszczynski, 43, of Miami, Fla., and Chouchane, 38, of Manhattan, face the same penalties for one count of securities fraud and one count of conspiracy to commit securities fraud and wire fraud.
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