Instinet LLC, a New York brokerage, agreed to pay more than $813,000 to settle U.S. Securities and Exchange Commission charges that it made improper "soft dollar" payments to an investment firm while ignoring red flags that the payments should not have been made.
Soft dollars are credits or rebates from a brokerage firm on commissions that investment advisers' clients pay for trades. According to the SEC, investment advisers may use credits or rebates that are appropriately disclosed to cover expenses that benefit clients.
The SEC, which announced the settlement on Thursday, said Instinet, a unit of Nomura Holdings Inc, paid about $430,000 of soft dollars to San Diego-based J.S. Oliver Capital Management LP despite receiving inconsistent justifications for the payments, or knowing that funds would go a company run by the firm's president, Ian Mausner.
The SEC said money paid by Instinet from January 2009 to July 2010 was used for payments to Mausner's ex-wife, rent that J.S. Oliver paid for office space in Mausner's home, and a personal real estate timeshare for Mausner in midtown Manhattan.
J.S. Oliver and Mausner had been charged by the SEC in August with misusing soft dollars.
"Brokers perform a crucial gatekeeper function in approving soft dollar payments, and they cannot turn a blind eye to red flags that investment advisers may be breaching their fiduciary duty to clients," said Marshall Sprung, co-chief of the SEC enforcement division's asset management unit, in a statement.
In settling with the SEC, Instinet agreed to pay a $375,000 fine plus additional sums and interest, and hire an independent consultant to review its soft dollar practices. It did not admit or deny the SEC's findings.
"Instinet is pleased that today's action closes the door on events that occurred long ago and involved a small number of payments that were processed on behalf of a single former client," spokesman Mark Dowd said.
Efforts to reach J.S. Oliver and Mausner on Thursday were not immediately successful.
The case is In re: Instinet LLC, SEC Administrative Proceeding No. 3-15663.
(Reporting by Jonathan Stempel in New York)