SEC Says Broker Charged $13M in Hidden Fees

(CN) - Financial brokerage Global Transition Solutions and its executives bilked customers out of $13 million over an eight-year period by imposing hidden fees on transactions, the U.S. Securities and Exchange Commission claims in a lawsuit.

In a lawsuit filed in the Philadelphia Federal Court, federal regulators said GTS's main business was helping customers primarily large municipal pension funds execute large-scale securities transactions when moving their portfolio between investments managers or when selling off a large securities holding.

But according to the SEC, between 2006 and 2014, the firm and its executive team CEO John Place, general counsel and COO Paul Kirk, and President John Kirk carried out a scheme in which they'd place customers' orders with a routing broker who would impose markups on the transactions and split the inflated proceeds with GTS.

"The defendants told many customers and prospective customers that GTS would receive only 'stated' or explicitly disclosed commissions and would serve as a fiduciary to the customer," the August 8 complaint says.

"The defendants did not, however, tell their customers that they would coordinate with routing brokers to impose mark-ups on the transactions the routing brokers handled," it continues.

The SEC claims the excessive fees were sometimes charged to customers on an "opportunistic basis," and at other times, after deliberation and "based on their perception of their customers' sophistication," according to the complaint.

Moreover, the agency says, the defendants circulated false and misleading marketing material and post-trade reports to customers in order to conceal their unlawful activities.

"While purporting to act as a fiduciary, defendants concealed these proceeds from customers. Worse, with at least two of the routing brokers, the defendants also prepared bogus invoices for execution research ostensibly used by the routing brokers, called 'Trade Cost Analysis' or 'TCA,' but that GTS provided primarily as an excuse for the routing brokers' illicit payments to GTS," the complaint says.

The SEC is asking the court to permanently enjoin the defendants from continuing the scheme.

Daniel Maher, counsel for the SEC, did not return Courthouse News' call in time for publication.

Representatives of Global Transition Solutions could not be reached for comment. In addition, the for website for the now defunct firm is no longer working.

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