SEC announces fifth distribution of funds to former clients of ConvergEx brokerage firms

Maria Nikolova

Two weeks after the fourth tranche distribution, the Commission gets a go ahead for a fifth one, with the money to go to one direct and eleven indirect customers of G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC.

The sum of money disbursed to former clients of G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC – brokerage subsidiaries of Convergex Group, is about to exceed $80.7 million, after the United States Securities and Exchange Commission (SEC) announced today that it had received written certification from the Managing Executive of the Division of Enforcement about a conforming payment file in the amount of $681,809.94. The money goes to 1 direct customer and 11 indirect customers of the three companies in question.

This is the fifth distribution made by SEC in this case, under a plan approved in July 2015. About two weeks ago, SEC announced the fourth distribution in the amount of $8,954,411.01.

In December 2013, G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC agreed to pay more than $107 million to settle fraud charges brought by the Securities and Exchange Commission. The three brokerage subsidiaries and two former employees of Convergex were accused of having caused a number of their institutional clients to pay significantly higher amounts than the disclosed ones for the execution of trading orders.

The ConvergEx brokerage firms claimed to customers that they charge explicit commissions to execute equity trading orders. However, they usually routed orders, including orders for US equities, to an offshore affiliate in Bermuda that executed them on a riskless basis and bolstered their profits by adding a mark-up or mark-down on the price of a security. The offshore affiliate usually consulted with the client-facing brokers to assess the risk of customer detection before taking the extra money on top of the disclosed commissions. The mark-ups and mark-downs resulted in many customers unknowingly paying more than double what they understood they were paying to have their orders executed.

In a separate action, the United States Department of Justice has announced criminal charges against ConvergEx Group, a brokerage subsidiary, and the two former employees. In order to settle those charges, ConvergEx Group has agreed to pay $43.8 million in criminal penalties and restitution.

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