Ex-ConvergEx Chief Charged With Securities Fraud

By Mani
Updated on

Former chief executive officer of a ConvergEx Group LLC unit and an ex-trader has been indicted for allegedly bilking millions of dollars from clients by charging hidden trading fees.

The indictment from the U.S. Justice Department was made public Thursday.

ConvergEx subsidiaries charged

As reported earlier, in December, three brokerage subsidiaries including ConvergEx Global Markets Limited and two former employees of leading trading services provider ConvergEx were charged with fraud in two parallel cases by the SEC. The cases relate to fraud wherein a number of institutional clients were charged much more than they were supposed to be for the execution of trading orders.

The investigation into the fraudulent charges began back in December of 2011 when the misconduct was first discovered in an internal audit. The Bermuda trading desk where the fraud occurred was also shut down at the time.

Interestingly, the U.S. Justice Department charges last week against Anthony Blumberg and Craig Marshal come after ConvergEx Group LLC in December separately agreed to pay $150 million to resolve criminal and civil charges into the same conduct.

Prosecutors’ claim

Prosecutors claim that brokers at ConvergEx Global Markets Ltd, a now-defunct brokerage unit previously registered with Bermuda routinely routed customers’ orders to Bermuda-based unit so they could markup or markdown the price for executed orders. Prosecutors allege that from 2007 through 2011, Blumberg and Marshall were able to hide these secret fees by falsifying reports that were sent to clients.

According to the SEC’s complaint filed against Blumberg in federal court in Newark, New Jersey, one university customer paid approximately $93,000 in disclosed commissions and about $543,000 in undisclosed Trading Profits. In another case, $1.6 million in fees allegedly went undetected. The SEC alleges that Blumberg engaged in deceptive practices to conceal the additional fees, and he encouraged traders under his management to do the same.

In a statement, General Leslie Caldwell, Assistant Attorney General said: “The Justice Department’s criminal division will bring to justice those who fleece investors in the financial markets, particularly high-level executives and sophisticated traders”.

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