ICAP in $25m Settlement with SEC Over Trading Fraud21st December 2009 9:00 am GMT
Bringing an end to a four-year investigation, interdealer broker ICAP plc has agreed a US$25 million settlement with the U.S Securities and Exchange Commission after its U.S subsidiary was charged with fraud for "engaging in deceptive broking activity and making material misrepresentations to customers" concerning its trading activities.
The SEC's enforcement action found that ICAP Securities USA LLC, through brokers at its U.S Treasuries (UST) desks, displayed fictitious flash trades also known as "bird" trades on ICAP's screens between December 2004 and December 2005, and disseminated false trade information into the marketplace in order to attract customer attention to its screens and encourage actual trading by these customers.
ICAP's customers believed the displayed fake trades to be real and relied on the phony information to make trading decisions.
ICAP agreed to settle the SEC's charges by paying $25 million in disgorgement and penalties. The SEC additionally charged five ICAP brokers for aiding and abetting the firm's fraudulent conduct and two senior executives for failing reasonably to supervise the brokers.
The seven individuals at ICAP charged by the SEC include Ronald A. Purpora, the former President of ICAP North America and Gregory F. Murphy, the Chief Operating Officer of ICAP. The five traders are Peter M. Agola, Ronald Boccio, Kevin Cunningham, Donald E. Hoffman and Anthony Parisi.
Without admitting or denying the SEC's findings, each of the brokers have agreed to be suspended from association with any broker or dealer for a period of three months, and with the exception of Hoffman, to pay a $100,000 penalty. Hoffman, who retired from ICAP nearly four years ago, has agreed to pay a $50,000 penalty.
Purpora and Murphy have each agreed to be suspended from association in a supervisory capacity with any broker or dealer for a period of three months and to pay a penalty of $100,000.
ICAP suspended two individuals on the Mortgage Backed Securities desk in June 2008 and subsequently terminated their employment for violation of ICAP policies.
"It is essential that ICAP and other inter-dealer brokers refrain from engaging in conduct that discredits their privileged position in the marketplace," said Lorin L. Reisner, Deputy Director of the SEC's Division of Enforcement. "ICAP engaged in deceptive practices that violated the legal and professional standards required of market participants; our action today demonstrates zero tolerance for such conduct."
According to the SEC's order, Purpora and Murphy supervised the respondent brokers on the UST desks, and, despite red flags, failed to prevent and detect the brokers' fictitious flash trades until after the conduct had been uncovered by the SEC.
Both Purpora and Murphy were aware that the respondent brokers used manual tickets to close out of positions in their house accounts, but failed to inquire into the brokers' practices regarding the use of manual tickets to circumvent the workup protocols concerning customer orders.
ICAP, founded by Conservative Party Treasurer Michael Spencer who remains Chief Executive of the company and its biggest shareholder, has also agreed to retain an independent consultant to review ICAP's current controls and compliance mechanisms, its trading activities on all desks to ensure that the violations described in the order are not occurring elsewhere at ICAP, and ICAP's books and records pertaining to trading records.