FINRA, NASDAQ, BX, PHLX, ISE, NYSE, NYSE Arca, NYSE American, Cboe, BZX, BYX, EDGA, and EDGX Permanently Bar Samuel Lek and Fine Lek Securities Corporation for Supervisory and Market Access Rule Violations
WASHINGTON — Samuel Lek, former Chief Executive Officer of Lek Securities Corporation (Lek Securities), has been permanently barred from the securities industry in all capacities, and Lek Securities was fined $900,000 for violating, among other things, FINRA and Exchange supervisory rules, and Rule 15c3-5 of the Securities Exchange Act of 1934 (the Market Access Rule). The actions were taken by FINRA, along with The NASDAQ Stock Market LLC, the New York Stock Exchange LLC, Cboe Global Markets, and certain of their affiliated Exchanges (collectively, Exchanges). The fine was apportioned among FINRA and the Exchanges.
For several years, Lek Securities provided market access to foreign traders who engaged in various forms of manipulative trading on U.S. equity and options exchanges, including layering, spoofing, and cross-product manipulation. Samuel Lek and Lek Securities substantially assisted this trading through a master-sub account held at Lek Securities and failed to reasonably supervise it.
Broker-dealers are required to establish and maintain reasonable supervisory procedures and market access controls to monitor for potentially manipulative trading activity by their customers, whether the activity is occurring through a master-sub account or otherwise.
Notwithstanding numerous “red flags” and ongoing investigations into the activity by FINRA, the Exchanges and the U.S. Securities and Exchange Commission (SEC), Samuel Lek and Lek Securities allowed the manipulative trading to continue for years. Samuel Lek and Lek Securities even provided office space, computer servers, trading software, and other services to the master-sub account used by those customer-traders.
For these reasons, among others, FINRA and the Exchanges found that Samuel Lek and Lek Securities failed to supervise the activities of the firm’s registered persons to achieve compliance with applicable securities laws and regulations, and failed to establish, maintain, and enforce written supervisory procedures to supervise the types of business in which the firm engaged.
Lek Securities also violated the Market Access Rule, which requires broker-dealers that provide their customers access to an exchange or alternative trading system to reasonably control the financial and regulatory risks of providing such access. Disregarding repeated alerts and communications from regulators concerning potentially manipulative trading in the master-sub account, Samuel Lek and Lek Securities continued to allow their customers to engage in layering, spoofing, and cross-product manipulation. In addition to Lek Securities’ primary violation of the Market Access Rule, FINRA and the Exchanges also found that Samuel Lek caused the firm’s violations of the Market Access Rule.
“This case demonstrates that broker-dealers cannot turn a blind eye to their obligations under FINRA and Exchange supervisory rules or under the SEC’s Market Access Rule. Enforcing these rules against broker-dealer gatekeepers preserves the integrity of our securities markets,” said FINRA and the Exchanges in a joint statement.
In addition to the permanent bar against Samuel Lek individually, and the $900,000 fine against Lek Securities, the firm also agreed to certain foreign intra-day trading restrictions, an independent monitor, and undertakings.
In settling this matter, Samuel Lek and Lek Securities neither admitted nor denied the charges but consented to the entry of FINRA’s and the Exchanges’ findings. In determining the appropriate monetary sanction, FINRA and the Exchanges took into account the sanctions imposed by the SEC in its parallel action against Sam Lek and Lek Securities (See Securities and Exchange Commission v. Lek Securities Corp., et al., No. 17-CV-01789 (DLC) (S.D.N.Y. Nov. 11, 2019)). The investigations that led to these actions were conducted by the Departments of Enforcement and Market Regulation at FINRA and the Exchanges.
FINRA is a not-for-profit organization 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, overseen by the SEC, 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.