The Financial Industry Regulatory Authority said it fined a New York brokerage, two top executives and nine traders a total of $2.26 million over their use of an illicit high frequency trading strategy. Trillium Brokerage Services entered numerous illegitimate market-moving orders for certain stocks in the NASDAQ Stock Market and NYSE Arca exchange, orders that were often sized substantially differently from the stocks' overall pending order volume, FINRA said.
The discrepancy generated selling or buying interest and created the false appearance of buy- or sell-side pressure. The practice induced others in the market to enter orders to execute against limit orders previously entered by Trillium traders, who would immediately cancel their illegitimate orders once their own limit orders were filled.
The strategy provided Trillium traders with advantageous pricing on 46,000 occasions and total profits of $575,000. In addition to fines, Trillium Director of Trading Daniel J. Balber was suspended for two years and Chief Compliance Officer Rosemarie Johnson was suspended for one year; nine traders also received suspensions and were required to pay out disgorgements totaling about $292,000. Trillium and the employees consented to the FINRA findings without admitting or denying the charges.
Two Chicago-based financial firms raised $5.6 million from investors through a fraudulent offering of promissory notes and used most of the proceeds to capitalize other struggling operations, including their parent company Brewer Investment Group (BIG), the Securities and Exchange Commission said. The SEC obtained a court order freezing the assets of the firms involved in the fraud. The firms' owners, Steven Brewer and Adam Erickson, provided offering materials that misstated or concealed how the money they raised would actually be used, and misrepresented the risk level of the investment. The SEC said the two men told investors they would use the funds for collateral to secure the notes; instead, they channeled nearly all the proceeds to subsidize BIG and one of its subsidiaries, when both entities were under “significant financial distress;” BIG had operating losses of $3 million in 2008 and defaulted on a $2.5 million loan in January 2009, the SEC said.
Regulators said Brewer and Erickson kept selling promissory notes to new investors even after they had stopped paying interest on notes sold to earlier investors. Brewer and Erickson sold the notes from June 2009 through at least the end of September 2010 through their broker-dealer, Brewer Financial Services, and their investment advisor firm, Brewer Investment Advisors.