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 In its case, the U.S. Securities and Exchange Commission said
37-year-old Joseph Dondero, a co-owner of a New Jersey-based trading
firm called Visionary Trading LLC, routinely engaged in spoofing.
Spoofing involves rapidly placing orders to create the illusion of
market demand. Unsuspecting traders are then tricked into buying or
selling at artificial prices, only to later find that the orders
were canceled.
"The fair and efficient functioning of the markets requires that
prices of securities reflect genuine supply and demand," said Sanjay
Wadhwa, a senior associate director of the SEC's New York regional
office.
"Traders who pervert these natural forces by engaging in layering or
some other form of manipulative trading invite close scrutiny from
the SEC."
Dondero has agreed to settle the charges, pay more than $1.9
million, and be barred from the securities industry.
An attorney for Dondero could not be immediately reached.
The SEC's case comes just days after the FBI and the Commodity
Futures Trading Commission each said they were looking more broadly
into the practice of spoofing, as part of a wide-ranging
investigation into strategies that may be deployed by high-frequency
traders.
U.S. Attorney General Eric Holder also said on Friday that the
Justice Department is investigating whether certain high-speed
trading practices violate insider trading laws.
Market scrutiny of fast-paced electronic trading and potential
manipulative practices intensified this week, after bestselling
author Michael Lewis released his book "Flash Boys: A Wall Street
Revolt."
In the book, Lewis alleges that the markets are rigged by high-speed
traders who profit from trades made at a speed unavailable to
ordinary investors.
It was not immediately clear in the SEC's charging documents whether
Visionary deploys high-speed trading strategies.
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In addition to charging Dondero with spoofing, the SEC charged three
of Visionary's co-owners — Eugene Giaquinto, Lee Heiss, and Jason
Medvin — saying they along with Dondero failed to register the firm
as a brokerage as required by law.
The agency claims that the four owners also illegally received a
share of their commissions from Lightspeed Trading LLC — a New
York-based brokerage — that were generated from trading for
Visionary's customers.
Lightspeed was charged by the SEC for allegedly ignoring red flags
that Visionary and its owners were receiving the compensation even
though the firm was not properly registered.
Lightspeed's former chief operating officer Andrew Actman was
additionally charged with failure to supervise.
All defendants in the case agreed to settle the matter. Collectively
they will pay about $3 million.
"None of my clients, Eugene Giaquinto, Lee Heiss, and Jason Medvin,
were charged with layering or spoofing. It is an unfortunate
situation that their registration violations got swept into this
larger investigation, but my clients are glad to put it behind them
and move on," said attorney Ms. Jenice Malecki of the New York-based
firm Malecki Law.
Attorneys for Lightspeed and Actman could not be immediately
reached.
(Reporting by Sarah N. Lynch; editing by Karey Van Hall and Diane
Craft)
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