Pa. Broker-Dealers Allegedly Charged $13M In Excess Commissions

Three broker-dealer representatives bilked customers out of $13 million in undisclosed commissions, then concealed their additional revenue, the SEC says..

The men and two now-defunct firms, both named Global Transition Solutions (GTS), misled clients about the fees they charged in connection with securities transactions, according to a lawsuit filed by the SEC in the U.S. District Court for the Eastern District of Pennsylvania, Philadelphia Division.

CEO John T. Place, President John P. Kirk and Kirk's brother, Paul G. Kirk, chief operating officer and general counsel, operated a “transition management” brokerage consulting business through GTS, holding themselves out as fiduciaries to their clients, the SEC says.

GTS, based in Newtown Square, Pa., assisted clients, mainly public pension funds, in handling large buy and sell orders when transitioning large portfolios from one investment manager to another, or liquidating them. Place and the Kirk brothers allegedly told many customers that the firm would receive only explicitly disclosed commissions charged on customers’ trades.

In certain cases, Place and GTS allegedly “coached” routing brokers on specifically how much to market up the clients’ trades, the SEC alleges.

GTS received additional revenue from markups and markdowns taken by other brokers and shared with GTS, receiving $13 million in undisclosed payments over the course of the scheme, according to the SEC complaint. 

Additionally, when providing clients with post-trade reports, GTS did not disclose the additional commissions it received, but allegedly concealed the revenue within “implicit” costs incurred during the transaction, the SEC says.

GTS, Place and the Kirk brothers also allegedly worked with ConvergEx Global Markets Limited, a Bermuda-based broker-dealer, and two other brokerage firms to execute the scheme, according to the complaint. After being accused of failing to disclose commissions, ConvergEx Global Markets and two sister brokerage subsidiaries admitted their wrongdoing and agreed to pay more than $107 million to settle the matter in 2013. ConvergEx also pled guilty to related criminal charges.

The SEC seeks permanent injunctions from future disclosure violations, disgorgement on a joint and several basis with prejudgment interest, and civil penalties.