UPDATE 1-U.S. SEC probes alleged fraud at fast trader Infinium - SEC letter

Fri Mar 7, 2014 12:18pm EST

By Tom Polansek

CHICAGO, March 7 (Reuters) - The U.S. Securities and Exchange Commission has launched an inquiry into whether high-speed trader Infinium Capital Management violated federal securities laws, according to a SEC letter obtained by Reuters.

The SEC has sought documents and recordings related to a lawsuit that former Infinium employees brought against the Chicago-based firm in January, the Feb. 27 letter said.

Privately held Infinium said on Thursday it had stopped trading and was actively winding down the company.

The lawsuit, filed in U.S. District Court in Chicago, alleged Infinium and company executives had committed "securities fraud" by tricking the employees into investing millions of dollars into the firm while hiding financial troubles.

"This inquiry is a non-public, fact-finding inquiry," the SEC letter said. "We are trying to determine whether there have been any violations of the federal securities laws."

The request for materials related to the lawsuit should "not be construed as an indication by the Commission or its staff that any violation of the federal securities laws has occurred, nor should it be a reflection upon any person, entity, or security," according to the letter.

It was signed by Marlene Key-Patterson, a senior attorney in the Division of Enforcement in the SEC's Chicago office.

The SEC does not confirm the existence of investigations as a matter of policy, a spokesman said.

UNDER PRESSURE

Infinium had been among the higher-profile electronic trading groups and was a household name among Chicago traders. The firm traded in commodities, energy and other markets.

Its closure reflects pressures on high-speed trading firms from increased competition and regulatory oversight, low interest rates that have hurt volume and volatility, and the uncertain global economic recovery.

Infinium sold assets to currency brokerage FXCM Inc and a subsidiary, which launched a joint venture employing former Infinium employees.

FXCM was not aware of the SEC inquiry, spokeswoman Jaclyn Klein said. It does not affect the joint venture, V3 Markets, because FXCM and its subsidiary acquired assets from Infinium, not the entire company, she said.

"V3 Markets purchased select assets from Infinium, as well as hired former employees of Infinium, none of which were named in the lawsuit," Klein said.

Shares of FXCM were down 0.4 percent at $16.17.

Infinium President Mark Palchak, who is chief executive officer of V3 Markets, declined to comment when telephoned by Reuters.

He was not named in the lawsuit.