The SEC charged three individuals and two now-defunct brokerage firms with fraud for misleading their current and prospective customers about the fees they charged in connection with securities transactions.
The SEC's complaint alleged that the individuals:
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operated and controlled a "transition management" brokerage consulting business, which purported to help customers (largely public pension funds) execute massive securities transactions when moving between different fund managers or liquidating large securities positions;
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informed many customers that the business would receive only "explicitly disclosed" commissions and would serve as a fiduciary to the customer;
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failed to inform their customers that they would transact through routing brokers imposing mark-ups and mark-downs which were "sometimes imposed on a wholly ad hoc and opportunistic basis . . . [and] in many cases, based on their perception of their customers' sophistication";
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concealed the proceeds generated from the mark-ups and mark-downs from customers while purporting to act as a fiduciary;
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prepared bogus invoices for executive research ostensibly used by the routing brokers, which was actually provided primarily as an excuse for the routing brokers' illicit payments to the firms and individuals; and
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received at least $13 million of undisclosed revenue.
The complaint further alleges that the individuals worked with a Bermuda-based broker-dealer and two other now-defunct brokerage firms to execute the fraudulent scheme. The complaint called for permanent injunction, disgorgement, prejudgment interest and civil monetary penalties.
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