Instinet, LLC, was censured and fined a total of more than $1.5 million for violations of various provisions the Market Access Rule and related exchange supervisory rules.
The Market Access Rule requires broker-dealers that provide their customers access to an exchange or alternative trading system to adequately control the financial and regulatory risks of providing such access. The rule is designed to ensure that broker-dealers appropriately control the risks associated with market access, so as not to jeopardize their own financial condition, that of other market participants, the integrity of trading on the securities markets, and the stability of the financial system.
The action against Instinet was taken by FINRA, along with BOX Options Exchange; the Cboe BZX Exchange; Investors Exchange (IEX); The NASDAQ Stock Market; the New York Stock Exchange; and certain of their affiliated exchanges. The fine was apportioned among FINRA and the exchanges.
“This case demonstrates the importance of reasonable market access procedures to appropriately monitor for errors and risks that can be harmful to the integrity of our securities markets,” said FINRA and the exchanges in a joint statement.
In settling this matter, Instinet neither admitted nor denied the charges but consented to the entry of FINRA’s and the exchanges’ findings.
Instinet provided market access to numerous clients. According to FINRA and the exchanges, the firm failed to supervise trading to detect and prevent potentially “violative and manipulative activity.”
Further, FINRA and the Exchanges found that the firm failed to comply with the Market Access Rule by failing to implement financial and regulatory risk management controls and procedures reasonably designed to prevent the entry of erroneous or duplicative orders, orders that exceeded appropriate pre-set credit or capital thresholds, or erroneous messaging activity resulting from malfunctioning customer algorithms and trading systems.
Courts Fine and Bar “Winning the Money Game” Advisor for Fraud
Courts ordered an investment advisor and his companies to pay more than $255,000 for defrauding clients, according to the Securities and Exchange Commission.
On April 2, a federal district court in Washington, D.C., entered final judgments against Ikenna “Ike” Ikokwu, a Georgia-based investment advisor, and his companies Winning the Money Game with Ike, Inc., and Winning the Money Game, LLC, all of which the SEC charged with fraud.
According to the SEC’s complaint, Ikokwu persuaded more than 20 clients of his companies to collectively invest $5 million in securities issued by FutureGen Company. The SEC previously charged FutureGen and its principal, Lawrence Schmidt, with defrauding investors.
The complaint against Ikokwu and his companies further alleged that in exchange for persuading clients to invest in FutureGen, Ikokwu received undisclosed “kickbacks” of more than $100,000 from FutureGen. He also allegedly told investors that he conducted extensive due diligence into FutureGen prior to making his recommendation, when, in reality, he did little or no research on the company.
In addition, the complaint alleged that Ikokwu falsely touted the performance of his own family’s investments with Schmidt to clients.
In its final judgement, the court ordered Ikokwu and his companies to pay disgorgement of $169,311 plus prejudgment interest of $6,869. The court also ordered Ikokwu to pay a civil penalty of $80,000.
Based on the entry of the judgment, the SEC barred Ikokwu and Winning the Money Game with Ike, Inc., from the securities industry with a right to reapply after 5 years.
On April 3, the court separately entered an order approving a settlement agreement between the receiver appointed to administer the assets of FutureGen and Ikokwu, under which Ikokwu agreed to repay an additional $64,796 for distribution back to injured investors.
SEC Awards Whistleblower More Than $2.1 Million
The SEC announced a whistleblower award of more than $2.1 million to a former company insider whose information led to multiple successful enforcement actions.
The whistleblower’s information strongly supported the findings in the underlying actions and the whistleblower provided ongoing assistance to the staff during the investigation, according to the SEC.
“The SEC has issued nearly $90 million in whistleblower awards in the past month alone,” Jane Norberg, Chief of the SEC’s Office of the Whistleblower, said in a statement. “As these awards demonstrate, we continue to receive high-quality information from whistleblowers, which we use to detect and prosecute securities violations and safeguard investors.”
Since issuing its first award in 2012, the SEC has awarded more than $266 million to 55 individuals under the whistleblower program. In that time, almost $1.5 billion in monetary sanctions have been ordered against wrongdoers based on actionable information received from whistleblowers, including more than $740 million in disgorgement of ill-gotten gains and interest, the majority of which has been or is scheduled to be returned to harmed investors.