ConvergEx, one of the leading providers of global brokerage and trading related services to institutional investors and pension funds, could face civil and criminal lawsuits from authorities in the United States on allegations that it overcharged its clients, if it fails reach a settlement.
ConvergyEx negotiations with DoJ and SEC
A report from the Financial Times indicated that ConvergyEx is in advanced negotiations with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to settle the impending charges.
As part of the settlement, authorities are expected to order the company to acknowledge its wrongdoing, according to people familiar with the situation. ConvergEx received orders from its clients directly or from third parties. The company is re-routing the orders, which will be executed by a network of brokers.
ConvergEx under investigation
ConvergEx is one of largest brokers providing services to institutional investors and pension funds. According to sources, regulators are investigating whether ConvergEx charged higher fees to gain more profit. They also want to find out of it disclosed certain transaction fees to its clients. Other brokers are also under investigation.
Jonathan Daspin, a former executive of ConvergEx who led the operations of the company’s operations in Bermuda, and who was terminated two years ago, is cooperating with the investigation.
ConvergEx is also cooperating with the investigation and it is hoping that it will be concluded soon. The company revealed the inquiry to the public in 2011.
ConvergEx said, “These legacy matters center on certain high-touch global program trading and global transition management orders routed through the former Bermuda trading desk of CGM, a ConvergEx subsidiary, which was effectively shut down in late 2011. ConvergEx discontinued this activity almost two years ago.”
Programs not included in investigation
In addition, ConvergEx clarified that its program and sales trading, options services, prime services, alternative trading systems, commission management and recapture services, clearing or technology businesses, as well as the live orders executed through its direct market access platform in the United States, are not included in the investigation.
The company further stated, “ConvergEx is in a strong financial position with no debt, significant cash flow and substantial cash on hand.” ConvergEx shut down its operations in Bermuda in 2011. Some of its top executives resigned amid the investigation.
The company was formed when the institutional executions business of Bank of New York Mellon (NYSE:BNY) merged with EXE Castle Securities.