MANHATTAN (CN) — A Ukrainian stock-trading firm manipulated U.S. markets “hundreds of thousands of times” and made $28 million from it, with help from the CEO of a brokerage firm in New York City, the SEC claims in Federal Court.
In the lawsuit and an accompanying statement on Friday the SEC says Kiev-based Vali Management Partners dba Avalon FA Ltd. made more than $21 million in a 5-year “layering” scheme, and more than $7 million in a “cross-market manipulation scheme.”
Defendants include Nathan Fayyer, 34, listed on corporate documents as sole owner and director of Avalon. Fayyer was born in Moldova and is a naturalized U.S. citizen, with homes in Kiev and New Jersey.
The SEC says Fayyer’s close friend Sergey Pustelnik, 35, is an “undisclosed control person” of Avalon. He was born in Ukraine and is a naturalized U.S. citizen, with homes in New Jersey and Massachusetts, where he is a second-year law student.
Their U.S. contacts, the SEC says, were Lek Securities Corp., a New York City-based broker dealer that advertises itself as the “Gateway to the Markets” for foreigners, and its founder, CEO and principal owner, Samuel Lek, 65.
Lek Securities has been previously sanctioned by the New York Stock Exchange and the Financial Industry Regulatory Authority “for failing to identify, prevent or stop manipulative trading,” the SEC says in the lawsuit.
Sam Lek supervised Lek Securities registered rep Pustelnik until Pustelnik was barred from being associated with any FINRA member rather than produce emails from his personal account for a FINRA investigation.
In announcing the lawsuit, and the freezing of Avalon accounts held at Lek Securities, the SEC defined layering as “a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.”
In the cross-market manipulation scheme, the SEC says, “the firm bought and sold U.S. stocks at a loss in order to manipulate the prices of the stock and its corresponding options so that it could then profitably trade at artificial prices.”
Finally, the SEC said in the statement: “Lek Securities and its owner Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon’s trading. According to the SEC’s complaint, Lek Securities also relaxed its layering controls after Avalon complained. Avalon was the highest-producing customer for Lek Securities in terms of trading commissions, fees, and rebates generated.”
In addition to getting an emergency court order freezing Avalon assets held at Lek Securities, it got an order freezing repatriating money Avalon transferred overseas, the SEC says.
Avalon is a Seychelles corporation based in Kiev.