Feb 10 (Reuters) - A former ConvergEx Group LLC brokerage unit chief executive admitted wrongdoing to resolve U.S. Securities and Exchange Commission charges that employees he supervised fraudulently charged hidden trading commissions to customers.
Craig Lax, 50, will also pay more than $783,000 and accept a five-year securities industry ban to resolve the SEC case, which concerned ConvergEx’s alleged routing of trading orders to a Bermuda affiliate that took hidden mark-ups and mark-downs.
Tuesday’s settlement followed New York-based ConvergEx’s December 2013 agreement to pay $150 million to resolve related federal criminal and civil charges.
The SEC said Lax, who led the G-Trade Services LLC unit from October 2006 to November 2013, let workers suspend mark-ups and mark-downs if customers requested materials that might reveal them, and employed a proprietary “anonymous algorithm in an otherwise transparent market” to hide the charges.
“Senior executives cannot permit deceptive practices by their subordinates,” associate SEC enforcement director Stephen Cohen said in a statement. “Lax not only condoned such conduct, but he specifically authorized practices that kept customers in the dark.”
The SEC said Lax will cooperate, that his payout includes ill-gotten gains and interest, and that a fine may be imposed.
“Mr. Lax appreciates the SEC’s recognition that he personally should not be charged with any fraud or primary liability,” his lawyer William Harrington said. “The SEC has the authority to hold executives responsible for the improper acts of lower-level employees and this settlement reflects that.”
Two other ConvergEx employees, former ConvergEx Global Markets Ltd Chief Executive Anthony Blumberg and former trader Craig Marshall, pleaded not guilty to federal criminal fraud and conspiracy charges over the alleged hidden trading fees.
U.S. District Judge Jose Linares in Newark, New Jersey on Feb. 4 rejected their joint request to dismiss the August 2014 indictment. Two other former ConvergEx employees have entered related guilty pleas. (Reporting by Jonathan Stempel in New York; Editing by Richard Chang)