The Securities and Exchange said Friday that it charged the owner of a Holmdel, N.J.-based brokerage firm with manipulative stock trading that involved an illegal practice known as “layering” or “spoofing” and with registration violations.
Two firms and five individuals agreed to pay a combined total of nearly $3 million to settle the case, which involved misconduct from May 2008 to November 2011, according to the SEC.
“Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices,” said Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit, in a statement. “The fact that Dondero perpetrated this deceit through the entry of trade orders did not allow him to evade detection.”
In layering, traders place orders with no intention of having them executed. The aim is to trick others into buying or selling a stock at an artificial price driven by the orders, which are later canceled, according to regulators.
The SEC says Joseph Dondero, a co-owner of Visionary Trading LLC, “repeatedly used this strategy to induce other market participants to trade in a particular stock.”
“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” said Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, in a press release. “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”