BD Pays $150 Million to Settle Civil and Criminal Charges for Excessive Commissions
A broker-dealer admitted wrongdoing and agreed to pay over $107 Million in penalties, disgorgement and interest for routing institutional client orders to an offshore affiliate that added mark-ups or mark-downs, thereby increasing the BD’s revenue. The firm also agreed to pay an additional $43.8 Million to settle criminal charges brought by the Department of Justice. Two employees also admitted wrongdoing and paid fines totaling over $1.2 Million. The SEC alleges that the firm and the employees assessed the risk of detection and sought to conceal the routing to the offshore affiliate. The SEC asserts that many customers paid more than double the amount expected for execution. The SEC explains that customers rely on brokers to ensure execution efficiency: “Monitoring the execution quality and costs of these orders can be difficult even for the most sophisticated investors given the complex nature of the markets where brokers must choose from a variety of order types, routing strategies, and trading venues.”
OUR TAKE: This case is clear evidence that we are in a brave new world of securities enforcement. The firm admitted to subjecting clients to excessive commissions, cooperated with the SEC, and took remedial actions including firing a bunch of execs. Yet, they still paid over $150 Million to settle with both the SEC and the Justice Department.