The SEC charged a quantitative analyst with a years-long scheme to front-run securities trades entered by two investment advisers that employed him.
In a Complaint filed in the U.S. District Court for the Southern District of New York, the SEC alleged that the analyst used material non-public information to trade ahead of approximately 3,000 trades executed by the firms for their clients by making the front-running trades in his wife's brokerage account. The SEC alleged that the analyst had access to the firms' order and execution management ("OEM") system and used information on pending large trades in the OEM system to trade in the same direction as the firms' clients, and then close his position the same day to capitalize on the price movements caused by the large trades.
The SEC charged the analyst with violations of Section 17(a) ("Use of interstate commerce for purpose of fraud or deceit") of the Securities Act, Section 10(b) of the Exchange Act and SEA Rule 10b-5 ("Employment of manipulative and deceptive devices"), and Section 17(j) ("Rules and regulations prohibiting fraudulent, deceptive or manipulative courses of conduct") of the Investment Company Act and ICA Rules 17j-1(b)(1) and (3) and 17j-1(d). The SEC also named the analyst's wife as a relief defendant.
As to the analyst, the SEC is seeking (i) permanent injunctions, (ii) disgorgement with prejudgment interest and (iii) civil money penalties. The SEC is also seeking disgorgement and prejudgment interest from the analyst's wife, who is in possession of the fraudulent funds and is charged with one count of unjust enrichment liability.
In a related action, the U.S. Attorney's Office for the Southern District of New York charged the analyst with securities fraud, wire fraud and investment company fraud.
- SEC Press Release: SEC Charges Quant Analyst in Multimillion Dollar Front-Running Scheme
- SEC Complaint: Sergei Polevikov, and Maryna Arystava
- U.S. Attorney's Office for the Southern District of New York Press Release: Former Analyst Charged With $8 Million Insider Trading Scheme For Front-Running Employer's Pending Trades
- U.S. Attorney's Office for the Southern District of New York Complaint: Sergei Polevikov
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