SEC issues order for disbursement of $31.1m to customers of Convergex brokerage firms

Maria Nikolova

The regulator has signed an Order directing the sixth disbursement of Fair Fund to the customers of G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC.

The United States Securities and Exchange Commission (SEC) has published an Order concerning another distribution of funds to former customers of G-Trade Services LLC, ConvergEx Global Markets Limited, and ConvergEx Execution Solutions LLC – brokerage subsidiaries of Convergex Group. This marks the sixth tranche of payments to be made by the SEC in this case.

The document, date September 26, 2019, says that, after completion of the fifth tranche, as of August 31, 2019, there is a residual amount of $31,110,431 left in the Fair Fund after leaving a reserve of $730,984.39 to pay for taxes and expenses, plus funds to cover uncashed or reissued checks from prior tranches.

The Secretary has now received written certification from the Chief/Deputy Chief Litigation Counsel of the Division of Enforcement that s/he has received a conforming payment file in the amount of $31,110,431 with distribution payments to 124 direct customers and 459 indirect customers.

Accordingly, the Commission staff will disburse all of the remaining Fair Fund from the JPMorgan Escrow Account, in the approximate amount of $30,044,647.78, to the Fund Administrator’s account at Citibank, N.A. The Fund Administrator will then distribute a total of $31,110,431 to investors.

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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