Unlawful Proprietary Trading Charges Net $42M for the SEC

Holding:

Defendants Automated Trading Desk Specialists, LLC (“ATD”); E*Trade Capital Markets LLC (“E*Trade”); Melvin Securities, L.L.C. (“Melvin”); Melvin & Company LLC (“Melvin Co”); Sydan, LP (“Sydan”); and TradeLink, LLC (“TradeLink”) have settled unlawful proprietary trading charges filed by the Securities and Exchange Commission (“SEC”) in the U.S. District Court for the Southern District of New York. Without admitting or denying the allegations set forth in the six separate complaints, defendants have consented to entry of orders permanently enjoining them from engaging in the violations set forth in the complaints, particularly trading violations stated in Chicago Stock Exchange (CHX”) Article 9, Rule 17, and Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(1), and have agreed to disgorge ill-gotten gains totaling in the aggregate over $35.7 million and pay civil penalties totaling more than $6.7 million.

Detailed Summary:

In its complaints, the SEC alleged that the defendants failed to meet their basic obligation as specialists to serve public customer orders over their own proprietary interests while executing trades on the CHX.

According to the SEC, as specialists operating on the CHX, each of the defendants had a general duty to match executable public customer or “agency” buy and sell orders and not to fill customer orders through trades from the specialist firm’s own accounts when those customer orders could be matched with other customer orders. However, from 1999 through 2005, each defendant violated this obligation by filling orders through…

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