New York Brokerage Charged Over Allowing Manipulative Trading

Harriet Davies Editor - Family Wealth Report 27 September 2012

New York Brokerage Charged Over Allowing Manipulative Trading

The Securities and Exchange Commission has charged Hold Brothers On-Line Investment Services, a New York-based brokerage firm, with allowing traders outside the US to conduct manipulative trading through accounts it controlled.

The SEC also charged three executives - president and co-founder Steve Hold, former chief compliance officer and chief financial officer Robert Vallone, and William Tobias – who it says ignored “red flags” during the period from January 2009 to September 2010.

“They failed to properly investigate the warning signs and recklessly continued to provide overseas traders with buying power and access to the US markets,” said the Commission.

The executives and firm are charged with allowing “layering,” whereby a trader places orders without the intention of having them executed. This is designed to trick others into buying or selling a stock at an artificial price driven by the orders, which are later cancelled.

“Manipulation, whether executed by e-mail, instant message, or multiple phantom orders, is still manipulation,” said Robert Khuzami, director of the SEC's enforcement division. “Traders and the firms that provide them market access should not labor under the illusion that illegally layering orders amidst voluminous trading data will somehow allow them to evade detection by the SEC.”

The two Hold Brothers customers whose accounts were used for manipulation have also been charged. The foreign companies, Trade Alpha Corporate and Demostrate, were created and partially owned by Hold, the SEC said.

Overall, the six individuals and entities agreed to pay a total of $4 million in disgorgement and penalties to settle the charges.

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