FINRA and Exchanges Charge Lek Securities and CEO Samuel F. Lek with Aiding and Abetting Securities Fraud
Charges Also Include Market Access Rule, Supervisory and Other Violations
WASHINGTON — The Financial Industry Regulatory Authority, along with the New York Stock Exchange; NYSE Arca; NYSE MKT; the four Bats Exchanges, Bats BZX, Bats BYX, Bats EDGA, and Bats EDGX; Nasdaq; Nasdaq BX; and the International Securities Exchange, today announced that they have commenced disciplinary proceedings against Lek Securities Corporation and its Chief Executive Officer, Samuel F. Lek, for aiding and abetting manipulative trading by one of its customers. Together, the complaints allege that Lek Securities and Lek aided and abetted extensive manipulative trading in a customer account known as “Avalon” from October 2010 through June 2015, which impacted both equities and options markets. Lek Securities is also charged with aiding and abetting Avalon’s operation of an unregistered broker-dealer.
Avalon’s manipulative trading activities involved practices known as “layering,” “spoofing” and “cross-product manipulation.” Layering can involve a pattern in which multiple, non-bona fide limit orders are entered on one side of the market at various price levels to create the appearance of a change in the supply and demand of the security so that the manipulator can obtain better-priced executions on orders entered on the opposite side of the market; the non-bona fide orders are then cancelled. Spoofing is a form of manipulation that can involve entering non-bona fide orders with the intention of cancelling those orders once they trigger some type of market movement or response from other market participants from which the manipulator can profit. The complaints allege that Avalon also engaged in cross-product manipulation by engaging in the manipulation of option prices through trading in the underlying equity securities.
Lek Securities is also charged with failing to comply with the SEC’s “Market Access” rule – SEC Rule 15c3-5 – by failing to have adequate risk-management controls and supervision over Avalon (its direct market access client), and Samuel Lek is charged with causing the violations. In addition, the firm is charged with violating “know-your-customer” rules, and rules regarding the preservation and supervision of electronic communications, the maintenance of CRD information, supervision of employee outside business activities, payments to individuals not associated with a broker-dealer, and failing to fully and timely comply with information requests from FINRA in connection with the investigation.
The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA and Exchange rules, a firm or individual named in a complaint can file a response and request a hearing before a disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2016, members of the public used this service to conduct 111 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/ brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.