The Securities and Exchange Commission on Wednesday barred and fined two brokers at a now-defunct Connecticut brokerage for giving customer order information to certain favored customers, which in turn helped those customers get better prices and generated extra commissions for their firm.
The former co-head of equities trading at Rochdale Securities, Hal Tunick, and his subordinate, Patrick Burke, allegedly defrauded customers by using their order information to advise two longtime customers to trade ahead of these orders, according to the SEC’s Enforcement Division.
Both Tunick and Burke consented to the SEC’s orders without admitting or denying the findings.
To settle the charges, the SEC says Tunick, of Chappaqua, New York, agreed to pay a civil penalty of $125,000 and to be barred from the securities industry.
In addition, Burke, of Wilton, Connecticut, agreed to pay a civil penalty of $50,000, disgorgement of commissions plus prejudgment interest, and to be barred from the securities industry with a right to reapply after five years.
“These brokers repeatedly shirked their obligation to seek best execution for their customers so they could get extra commissions for their firm and better prices for favored customers,” said Joseph G. Sansone, co-chief of the Enforcement Division’s Market Abuse Unit, in a statement. “They are now paying the price for putting the interests of favored customers and themselves ahead of the interests of their other customers.”
The SEC says that once the favored customers purchased or sold short the shares, Tunick and Burke arranged for them to unload their positions to the customers who had placed the original orders.
While the favored customers profited from these trades, the defrauded customers generally received worse prices than they would have if their orders had been routed directly to the market, according to the SEC.
According to the SEC, this lasted from at least 2010 to 2012.
As a result of this scheme, Tunick and Burke’s firm essentially earned double trading commissions: one for executing trades by the favored customer and another for executing the original Rochdale customer order.
According to the SEC, Tunick and Burke were aware of their obligations to execute Rochdale customer trades consistent with Rochdale’s duty of best execution, which requires a broker to seek to obtain the most favorable terms reasonably available under the circumstances for a customer’s transaction.
Tunick and Burke failed to seek best execution on those orders by causing orders to be filled at prices that were worse than those available in the market.
The investigation of the brokers’ illegal scheme was prompted by information the SEC Division of Enforcement developed in the course of a separate inquiry.
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