The Securities and Exchange Commission has charged New York-based brokerage firm Linkbrokers Derivatives for taking over $18 million in profits from clients by secretly adding hidden markups and markdowns to their trades.

The Securities and Exchange Commission has charged New York-based brokerage firm Linkbrokers Derivatives for taking over $18 million in profits from clients by secretly adding hidden markups and markdowns to their trades.

The SEC said Linkbrokers, which ceased acting as a broker-dealer in April 2013, has agreed to pay $14 million to settle the charges.

The regulator previously charged four former brokers on the cash equities desk at Linkbrokers in 2012. Three of them later agreed to settle by consenting to judgments ordering more than $4 million in disgorgement, plus interest.

The former brokers who previously agreed to settle the charges are Benjamin Chouchane, Marek Leszczynski and Henry Condron, who each pleaded guilty to criminal charges. The SEC’s litigation continues against the fourth former broker, Gregory Reyftmann.

According to the SEC, certain representatives on Linkbrokers’ cash equity desk defrauded customers by promising them very low commission fees, but charged fees that in some cases were over 1,000 per cent greater than represented.

“These brokers hid the true size of the fees they were collecting by misrepresenting the price at which they had bought or sold securities on behalf of their customers,” the SEC said in a statement.

“The scheme was difficult for customers to detect because the brokers charged the markups and markdowns during times of market volatility in order to conceal the false prices they were reporting to customers,” it added.

The scheme occurred from at least 2005 to February 2009 and involved more than 36,000 transactions, with markups and markdowns ranging from a few dollars to $228,000, the SEC added.

“This settlement strips Linkbrokers of its remaining assets and allows those funds to be returned to harmed customers,” said Daniel Hawke, chief of the SEC enforcement division’s market abuse unit. 

The SEC said that Linkbrokers settled without admitting or denying the findings, and will withdraw its registration.