SEC Obtains Settlement for Violations of Registration Rules and “Layering”

The Securities and Exchange Commission recently announced a settlement with two brokerage firms and certain of their executives for improper compensation-sharing and “layering,” a strategy in which a trader places and later cancels orders he does not intend to have executed in order to induce others to transact at a price not representative of actual supply and demand.

From May 2008 through November 2011, Visionary Trading LLC, an unregistered brokerage, allegedly engaged in day-trading through accounts at Lightspeed Trading LLC (Lightspeed), a registered broker dealer. The SEC claimed that Visionary customers paid commissions to Lightspeed, and Lightspeed then split those commissions with Visionary’s four owners. In total, the Visionary owners purportedly received $474,407 of the commissions generated by its customers’ trading, and Lightspeed retained $330,000 in commissions. 

The SEC also alleged that one of the Visionary owners, Joseph Dondero, engaged in “layering,” or placing orders he did not intend to have executed, for the purpose of manipulating prices. Dondero purportedly placed hundreds of thousands of such orders and obtained profits of $984,398. 

As part of the settlement, which did not require factual admissions, Dondero agreed to a permanent bar from the securities industry, and to pay $1,149,791.96 in disgorgement and interest, plus a civil penalty of $785,000. The other three Visionary owners each agreed to a two-year bar, $132,993.28 in disgorgement and interest, and a $35,000 civil penalty. Lightspeed’s CEO during the relevant period agreed to a one-year bar from holding a supervisory role, and a civil penalty totaling $10,046.23. Lightspeed agreed to pay disgorgement and interest of $377,908.70, as well as a civil penalty totaling $100,308.22.   

In the Matter of Visionary Trading LLC, et al., A.P. File No. 3-15823 (Apr. 4, 2014).  

Topics:  Broker-Dealer, Executive Compensation, SEC, Settlement, Visionary

Published In: Business Torts Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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