The co-owner of a Holmdel, N.J., brokerage firm and four others have agreed to pay almost $2 million to settle an SEC charge for illegally trading publicly traded stocks through a scheme known as layering or spoofing, the SEC announced today.
Two firms also were charged in the scheme. The five individuals also were charged with registration violations. Layering or spoofing involves placing orders for stocks that the trader never intends to execute. The false orders are placed to trick others into buying or selling a stock at an artificial price driven by the orders that the trader later cancels.
Joseph Dondero, a co-owner of Visionary Trading LLC, repeatedly used this strategy to induce other market participants to trade in a stock, the SEC says. 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 orders to dupe market participants into believing there was a true demand for the stock.
“Week after week, Dondero lined his pockets by placing phony orders and tricking others into trading with him at distorted prices,” says Joseph G. Sansone, co-deputy chief of the SEC Enforcement Division’s Market Abuse Unit.
The SEC also charged Dondero, Visionary Trading and three co-owners with operating an unregistered brokerage firm. New York-based brokerage firm Lightspeed Trading LLC is charged with aiding and abetting the registration violations and its former chief operating officer, Andrew Actman, is charged with failing to supervise one of the Visionary owners.
The other Visionary co-owners charged in the scheme, which occurred between 2008 to November 2011, are Eugene Giaquinto, Lee Heiss, and Jason Medvin.
In settling the SEC’s charges, Dondero agreed to pay the bulk of the disgorgement and penalties at $1.9 million. He also is barred from the securities industry. The other four individuals and Lightspeed will pay the remainder of the disgorgement and penalties and are barred from the securities industry for periods of one or two years,