The U.S. Securities and Exchange Commission has issued final judgments in the amount of $1.5 million against three of the top brass at the now-defunct brokerage firm GTS and its affiliate, Global Transition Solutions, for scamming customers of $13 million in undisclosed commissions, according to a news release.
The men—John T. Place, who was the CEO of GTS, and brothers John P. Kirk, who served as president, and Paul G. Kirk, who served as chief operating officer—along with GTS and its brokerage affiliate, were previously charged by the SEC with misleading current and prospective customers about the fees GTS charged in connection with securities transactions.
According to the complaint, the Newtown Square, Pa.-based GTS purported to assist customers—typically, public pension funds—in executing massive securities transactions when "transitioning" a large portfolio from one investment manager or strategy to another, or simply when liquidating a large securities position altogether.
The defendants, the complaint said, told many of their customers and prospective customers that GTS would receive explicitly disclosed commissions and would serve as a fiduciary to the customer. But the defendants did not tell their customers that they would coordinate with routing brokers to impose markups on the transactions the routing brokers handled.
These markups, the complaint said, were sometimes imposed on a wholly ad hoc and opportunistic basis, at the direction of Place and GTS—in many cases, based on their perception of their customers' sophistication. The defendants also did not tell their customers that GTS shared in the pool of revenue created by these markups, nor did defendants ever specifically disclose the existence or amounts of these markups in post-trade reports delivered to customers.
Additionally, the SEC said that while purporting to act as fiduciaries, the defendants concealed these proceeds from customers. They also prepared bogus invoices for execution research with at least two of the routing brokers, the agency said.
These actions, according to the complaint, took place from at least October 2006 until at least February 2014. During that time, the undisclosed revenue from markups and markdowns taken by other brokers and shared with GTS totaled at least $13 million, the SEC said.
Without admitting or denying the SEC's allegations, the men each consented to the entry of final judgments permanently barring them from violating the antifraud provisions of the Securities Exchange Act of 1934.
John Kirk agreed to pay disgorgement of $379,795, prejudgment interest of $99,974 and a civil penalty of $379,795; Paul Kirk agreed to pay disgorgement of $90,939, prejudgment interest of $23,938, and a civil penalty of $90,939; and John Place agreed to pay disgorgement of $375,803 and prejudgment interest of $57,688. The court did not order Place to pay a civil penalty because of his cooperation during the litigation, the release said.
The court pointed out that Place consented to an order, issued in December, barring him from the securities industry.