SEC Slaps Illegal Traders for $5 Million

     WASHINGTON (CN) – A former securities trader at a San Diego-based brokerage will pay $1 million to settle illegal-trading charges, and a Mexican firm he worked with will pay $4 million, the SEC said.



     The SEC said Aurelio Rodriguez, formerly of Coronado, Calif., now living in Mexico, worked with a Mexican investment adviser, InvesTrust, and unnecessarily inserted a separate broker-dealer as middleman in securities transactions to generate millions of dollars in fees.
     The SEC also charged his former firm, Investment Placement Group, and its CEO with failing to properly supervise Rodriguez. IPG agreed to pay more than $4 million to settle the charges.
     “In an interpositioning scheme, an extra broker-dealer is illegally added as a principal on trades even though no real services are being provided,” the SEC said in a statement announcing the settlement.
     The SEC claims that Rodriguez’s and InvesTrust’s collusion cost InvesTrust’s pension fund clients to pay $65 million more than they would have without the middleman.
     “Rodriguez repeatedly abused his position as a securities industry professional to commit this cross-border fraudulent scheme to the detriment of the pension funds,”, the SEC Los Angeles Regional Office Director Rosalind R. Tyson said in the statement. “The scheme’s participants reaped millions of dollars from these illicit activities.”
     According to the SEC’s order instituting administrative proceedings against Rodriguez, the scheme lasted from January to November 2008. Rodriguez, in coordination with InvesTrust, acquired 10 credit-linked notes in an IPG proprietary account. Rodriguez knew that the notes were slated for InvesTrust’s pension fund clients.
     The SEC claims that IPG, through Rodriguez, added a markup of 1.5 to 4.5 percent to the purchase price and then sold the notes to the middleman Mexican brokerage firm. IPG, through Rodriguez, repurchased the notes from the Mexican brokerage firm within a day or so at a higher price. IPG added another markup and then sold the securities to InvesTrust’s pension fund clients.
     In some instances Rodriguez repeated the pattern with the middleman Mexican brokerage firm several times, driving up the price with each successive trade before finally selling the notes to the pension funds at inflated prices. Rodriguez received millions of dollars in markups from the extra transactions.
     Without admitting or denying the SEC’s findings, Rodriguez consented to the order and agreed to pay $1 million in ill-gotten gains and to be barred from the securities industry and from participating in any penny stock offering for 5 years.
     The SEC instituted separate, related administrative proceedings against IPG and its CEO Adolfo Gonzalez-Rubio, who was Rodriguez’s direct supervisor. IPG and Gonzalez-Rubio also agreed to settle without admitting or denying the SEC findings.
     IPG agreed to be censured, pay approximately $3.8 million in disgorgement and prejudgment interest, plus a $260,000 penalty. Gonzalez-Rubio agreed to a 3-month suspension as a supervisor with any broker, dealer, investment adviser, or other registered entities.

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