Two former Linkbrokers Derivatives brokers have been arrested on criminal charges of securities fraud, wire fraud, and conspiracy to commit securities fraud. Benjamin Chouchane and Marek Leszczynski, along with others, are accused of taking part in a securities scam that cost customers $18.7 million. It involved the brokers secretly raising the price of trades, in some instances by just pennies, or lowering them, and then concealing the actual cost from clients. The Securities and Exchange Commission, which is also filing civil charges against the two men, as well as against brokers Henry Condron and Gregory Reyftmann, says that they executed over 36,000 trades with these types of price discrepancies between 2005 and 2009. Condron has already pleaded guilty to criminal charges of conspiracy and securities fraud.
The alleged manipulations usually occurred when the market was more volatile and the prices were more likely to fluctuate, which made it easier for the mispricings to go undetected. While profits may have been minimal-for example, in one trade Leszczynski allegedly marked up 20,000 shares’ buying price by 1.2 cents/share, resulting in a $240 profit-pennies do add up. As SEC Division of Enforcement Director Robert Khuzami noted, by overcharging clients for stock trades, the brokers ultimately bilked customers of millions of dollars.
Linkbrokers executes high-volume trades for institutional clients. It is an interdealer broker firm that usually executes these large trades for low commissions. However, institutional investors are not the only ones to be impacted by such scams.