WASHINGTON (CN) - Visionary Trading, of New Jersey, in cahoots with another LLC and five men, must pay nearly $3 million to settle a complaint of profiting through "spoof" stock sales, the SEC said.
Named as defendants in the SEC's administrative cease and desist order are Visionary Trading, of Holmdel, N.J.; Lightspeed Trading, of New York City; four owners of Visionary and one former Lightspeed officer.
Visionary and its operators are accused of spoofing or layering: placing orders with no intention of executing them, but using them to drive up the price and trick others into buying it, then canceling the spoofed orders.
"An SEC investigation found that Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a particular stock," the SEC said in a statement. "By placing and then canceling layers of orders, Dondero created fluctuations in the national best bid or offer of a stock, increased order book depth, and used the non-bona fide orders to send false signals to other market participants who misinterpreted the layering as true demand for the stock.
In addition to Dondero, 37, of Lincroft, N.J., the SEC went after Andrew Actman, 41, of Demarest, N.J.; Eugene Giaquinto, 40, of Monroe, N.J.; Lee Heiss, 41, of Marlboro, N.J.; and Jason Medvin, 39, of Marlboro.
The complaint states: "From May 2008 through November 2011 (the 'Relevant Period'), Visionary operated an office in New Jersey where the firm's owners, Dondero, Giaquinto, Heiss, and Medvin (collectively, the 'Visionary Owners') and as many as sixteen other individuals engaged in day-trading through various accounts held at Lightspeed, a registered broker-dealer. The sixteen other individuals included two groups: (a) individuals who traded securities using funds provided by the Visionary Owners (the 'Visionary Proprietary Traders'); and (b) customers who traded securities using their own funds (the 'Visionary Customers'). In connection with their trading, the Visionary Customers paid commissions to Lightspeed, and two Lightspeed registered representatives improperly shared a portion of this transaction-based compensation with Visionary, an unregistered entity. During the Relevant Period, Visionary and the Visionary Owners received $474,407 of the commissions that were generated by the Visionary Customers' trading, and Lightspeed retained approximately $330,000 in commissions.
"By virtue of this conduct, (a) Visionary and the Visionary Owners willfully violated Section 15(a)(1) of the Exchange Act by operating an unregistered broker-dealer; (b) Giaquinto willfully aided and abetted and caused Visionary's, Dondero's, Heiss's, and Medvin's violations of Section 15(a)(1) of the Exchange Act; (c) Lightspeed willfully aided and abetted and caused Visionary's and the Visionary Owners' violations of Section 15(a)(1) of the Exchange Act; (d) Lightspeed failed reasonably to supervise Giaquinto, one of the Visionary Owners, who was also a registered representative of Lightspeed from January 2010 through November 2011, by failing to have reasonable policies and procedures in place designed to prevent and detect commission payments from its registered representatives to persons not registered with the Commission; and (e) Actman failed reasonably to supervise Giaquinto from January 2010 through November 2011 in connection with Giaquinto's aiding and abetting and causing Visionary's, Dondero's, Heiss', and Medvin's violations of Section 15(a)(1) of the Exchange Act."
Dondero agreed to pay $1.9 million in disgorgement and penalties and be barred from the securities industry; Giaquinto, Heiss and Medvin must pay $168,000 apiece and will be barred for two years; Lightspeed must pay $478,000; and Actman $10,000, the SEC said in a statement.EDITOR'S NOTE: An earlier version of this article incorrectly stated that the SEC action named four owners of Visionary as defendants. In fact, four Visionary co-owners and one former officer of Lightspeed are individual respondents. Courthouse News regrets the error.