SEC Files Charges Against Traders for Options Trading Scams

The SEC has filed charges against ex-broker Richard Kenney and twin brothers Shahryar Afshar and Behruz Afshar. The regulator is accusing them of going around market structure rules and engaging in options trading scams. The regulator claims that the three men improperly traded options to garner lower fees and gain execution priority. They also purportedly took part in spoofing so they could get liquidity rebates.

SEC Enforcement Division Director Andrew Ceresney said that the men’s alleged actions fooled the options exchanges and placed other participants at a disadvantage. The regulator maintains that because of their purported wrongdoing, the two brothers and Kenney were able to get benefits that were not intended for professional traders.

Specifically, according to the SEC order: Even though the Afshars’ accounts should have gotten the “professional” designation for acting as non-broker-dealers that placed over 390 orders/day during the subsequent quarter, they were able to place orders as “customer” non-broker dealers. They did this by alternating trading between accounts. After one account became designated “professional” for the next quarter, they would use the other “customer” account and then trade off the next quarter.

The SEC says that Kenny and the Afshars were able to execute this scam through misrepresentations that made it seem as if just one of the brothers owned Fineline Trading Group, LLC while the other was supposedly the sole owner of Makino Capital, LLC.

Spoofing typically involves a trader places a big bet against or on a security. The market then responds, which causes the price of the security to go up or down. The trader then cancels the bet, seeking to profit over the market’s response.

The three men allegedly used All-Or-None options orders in their scam. They are accused of making non-bona fide orders that were displayed in the same option order series and price as AON orders, although not on the same side of the market. These smaller orders were used to modify the options’ offer or best bid to spoof others participants into make their orders at the same price. These orders were then executed against the brothers’ concealed AON orders.

Meantime, orders that were displayed in the open were cancelled. As a result, says the regulator, the executed AON orders appeared to have added liquidity. This resulted in rebates for Makino and Fineline.

Stockbroker Fraud
Securities fraud can lead to gains for scammers and losses for investors. At Shepherd Smith Edwards and Kantas, LTD LLP, our securities lawyers are here to help our clients get their investment losses back.

For years, our stockbroker fraud law firm has helped retail investors, high net worth investors, and institutional investors in court and in arbitration. We know how devastating investment losses can be, and we have helped thousands of investors. Working with an experienced options trading fraud lawyer can increase your chances of maximizing your recovery.

Read the SEC Order (PDF)