SEC Recently Announces Charges for Spoofing and Order Mismarking

The Securities and Exchange Commission today announced fraud charges against three Chicago-based traders accused of circumventing market structure rules in a pair of options trading schemes.

The SEC Enforcement Division alleges that twin brothers Behruz Afshar and Shahryar Afshar and their friend and former broker Richard Kenny mismarked option orders to obtain execution priority and lower fees, and engaged in manipulative trading known as “spoofing” to generate liquidity rebates from an options exchange.

“We allege that the Afshar brothers and Kenny fraudulently mismarked their orders to obtain benefits that they were not entitled to receive, and engaged in spoofing to collect liquidity rebates. This alleged scheme deceived the options exchanges, disadvantaged other market participants, and undermined the fair operation of the U.S. securities markets,” said Andrew Ceresney, Director of the SEC Enforcement Division.

Robert A. Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, added, “We allege that these individuals tricked the exchanges into giving them benefits not meant for professional traders, and fooled other market participants by spoofing the market with non-bona fide orders.”

In an order instituting an administrative proceeding, the SEC Enforcement Division alleges:

Mismarking of Options Orders

• Options exchange rules provide that a non-broker-dealer that places more than 390 orders in options per day (on average) – whether executed or not – during any calendar month in a quarter will be designated as a “professional” for the next quarter.
• Conversely, a “customer” is a non-broker-dealer that does not exceed the 390-order threshold for each calendar month in a quarter.
• Despite far exceeding the 390-order threshold for every quarter from October 2010 to December 2012, the Afshars’ accounts (in the names of Fineline Trading Group LLC and Makino Capital LLC) were able to continually place “customer” orders throughout this time period by alternating their trading on a quarterly basis between accounts.
• When one account was “professional” for an upcoming quarter, they switched their trading to the other account, which was designated as “customer.” They then switched back the following quarter.
• The “customer” and “professional” designations are supposed to apply to all accounts beneficially owned by the trader. However, the Afshars and Kenny accomplished this back-and-forth scheme through false representations that Behruz solely owned Fineline and that Shahryar solely owned Makino, despite the fact that Behruz had an ownership interest in both companies.

Spoofing

• From May 2011 to December 2012, the spoofing scheme was designed to take advantage of the “maker-taker” program offered by an options exchange.
• Under the maker-taker program, an order that is sent to an exchange and executes against a subsequently received order generates a “maker” rebate from the exchange. In contrast, an order that immediately executes against a pre-existing order is charged a “take” fee.
• The Afshars and Kenny carried out the scheme by using All-Or-None (AON) options orders – hidden orders that must be executed in their entirety or not at all – and placing smaller, non-bona fide displayed orders in the same option series and price as the AON orders, but on the opposite side of the market.
• The smaller orders were not intended to be executed but instead were placed to alter the option’s best bid or offer in order to induce, or spoof, other market participants into placing orders at the same price.
• Those orders from other market participants executed against the Afshars’ hidden AON orders, and any open displayed orders were then canceled.
• Because the executed AON orders existed before the orders sent by the spoofed counterparties, they were deemed to have added liquidity and generated rebates for the accounts of Fineline and Makino.

The SEC Enforcement Division alleges that Behruz, Shahryar, Kenny, Fineline, and Makino violated Section 17(a) of the Securities Act as well as Sections 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5. The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

SEC Charges Unregistered Broker in Tampa Area With Stealing From Investors in Fraudulent Day Trading Scheme

The Securities and Exchange Commission recently charged an unregistered broker living outside Tampa, Fla., with stealing investor funds as part of a fraudulent day trading scheme.

The SEC alleges that Albert J. Scipione and his business partner solicited investors to establish accounts at their company called Traders Café for the purposes of day trading, which entails the rapid buying and selling of stocks throughout the day in hope that the stock values continue climbing or falling for the seconds to minutes they own them so they can lock in quick profits. Scipione touted Traders Café’s software trading platform and made a series of false misrepresentations to investors about low commissions and fees, high trading leverage, and safety of their assets. More than $500,000 was raised from investors who were assured that funds invested with Traders Café would be segregated and used only for day trading or other specific business purposes. However, many customers encountered technical service problems that prevented them from trading at all, and Scipione and his business partner squandered nearly all of the money in investor accounts for their personal use. Meanwhile, Traders Café was never registered with the SEC as a broker-dealer as required under the federal securities laws.

The SEC previously charged Scipione’s business partner Matthew P. Ionno, who agreed to settle the case and has been barred from the securities industry. Financial penalties will be decided by the court at a later date.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida today announced that Scipione has pleaded guilty to criminal charges. The U.S. Attorney’s Office previously brought a criminal case against Ionno.

According to the SEC’s complaint filed against Scipione in federal court in Tampa, customers across the country deposited approximately $367,000 with Traders Café from December 2012 to October 2013 with the intention of opening day trading accounts. Traders Café also received approximately $150,000 from an investor who invested directly in Traders Café’s business. Customers encountered problems with Traders Café from the outset, and many of them cancelled their accounts and requested refunds of their remaining account balances. Scipione and Ionno tried to cover up their fraudulent scheme by offering excuses and delays for why customers could not get refunds. Eventually less than $1,200 remained in Traders Café’s accounts primarily due to the repeated misuse of investor funds by Scipione and Ionno.

The SEC previously charged Scipione’s business partner Matthew P. Ionno, who agreed to settle the case and has been barred from the securities industry. Financial penalties will be decided by the court at a later date.

In a parallel action, the U.S. Attorney’s Office for the Middle District of Florida today announced that Scipione has pleaded guilty to criminal charges. The U.S. Attorney’s Office previously brought a criminal case against Ionno.

According to the SEC’s complaint filed against Scipione in federal court in Tampa, customers across the country deposited approximately $367,000 with Traders Café from December 2012 to October 2013 with the intention of opening day trading accounts. Traders Café also received approximately $150,000 from an investor who invested directly in Traders Café’s business. Customers encountered problems with Traders Café from the outset, and many of them cancelled their accounts and requested refunds of their remaining account balances. Scipione and Ionno tried to cover up their fraudulent scheme by offering excuses and delays for why customers could not get refunds. Eventually less than $1,200 remained in Traders Café’s accounts primarily due to the repeated misuse of investor funds by Scipione and Ionno.

The SEC’s complaint against Scipione alleges that he violated Section 17(a) of the Securities Act of 1933 as well as Section 15(a) and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief to enjoin Scipione from future violations of the federal securities laws.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Watch out for “phishy” emails. The most common form of phishing is emails pretending to be from a legitimate retailer, bank, organization, or government agency. The sender asks to “confirm” your personal information for some made-up reason: your account is about to be closed, an order for something has been placed in your name, or your information has been lost because of a computer problem. Another tactic phishers use is to say they’re from the fraud departments of well-known companies and ask to verify your information because they suspect you may be a victim of identity theft! In one case, a phisher claimed to be from a state lottery commission and requested people’s banking information to deposit their “winnings” in their accounts.

Don’t click on links within emails that ask for your personal information. Fraudsters use these links to lure people to phony Web sites that looks just like the real sites of the company, organization, or agency they’re impersonating. If you follow the instructions and enter your personal information on the Web site, you’ll deliver it directly into the hands of identity thieves. To check whether the message is really from the company or agency, call it directly or go to its Web site (use a search engine to find it).

Beware of “pharming.” In this latest version of online ID theft, a virus or malicious program is secretly planted in your computer and hijacks your Web browser. When you type in the address of a legitimate Web site, you’re taken to a fake copy of the site without realizing it. Any personal information you provide at the phony site, such as your password or account number, can be stolen and fraudulently used.

Never enter your personal information in a pop-up screen. Sometimes a phisher will direct you to a real company’s, organization’s, or agency’s Web site, but then an unauthorized pop-up screen created by the scammer will appear, with blanks in which to provide your personal information. If you fill it in, your information will go to the phisher. Legitimate companies, agencies and organizations don’t ask for personal information via pop-up screens. Install pop-up blocking software to help prevent this type of phishing attack.

Protect your computer with spam filters, anti-virus and anti-spyware software, and a firewall, and keep them up to date. A spam filter can help reduce the number of phishing emails you get. Anti-virus software, which scans incoming messages for troublesome files, and anti-spyware software, which looks for programs that have been installed on your computer and track your online activities without your knowledge, can protect you against pharming and other techniques that phishers use. Firewalls prevent hackers and unauthorized communications from entering your computer – which is especially important if you have a broadband connection because your computer is open to the Internet whenever it’s turned on. Look for programs that offer automatic updates and take advantage of free patches that manufacturers offer to fix newly discovered problems. Go to www.onguardonline.gov and www.staysafeonline.org to learn more about how to keep your computer secure.

Only open email attachments if you’re expecting them and know what they contain. Even if the messages look like they came from people you know, they could be from scammers and contain programs that will steal your personal information.

Know that phishing can also happen by phone. You may get a call from someone pretending to be from a company or government agency, making the same kinds of false claims and asking for your personal information.

If someone contacts you and says you’ve been a victim of fraud, verify the person’s identity before you provide any personal information. Legitimate credit card issuers and other companies may contact you if there is an unusual pattern indicating that someone else might be using one of your accounts. But usually they only ask if you made particular transactions; they don’t request your account number or other personal information. Law enforcement agencies might also contact you if you’ve been the victim of fraud. To be on the safe side, ask for the person’s name, the name of the agency or company, the telephone number, and the address. Get the main number from the phone book, the Internet, or directory assistance, then call to find out if the person is legitimate.

Job seekers should also be careful. Some phishers target people who list themselves on job search sites. Pretending to be potential employers, they ask for your social security number and other personal information. Follow the advice above and verify the person’s identity before providing any personal information.

Be suspicious if someone contacts you unexpectedly and asks for your personal information. It’s hard to tell whether something is legitimate by looking at an email or a Web site, or talking to someone on the phone. But if you’re contacted out of the blue and asked for your personal information, it’s a warning sign that something is “phishy.” Legitimate companies and agencies don’t operate that way.

Act immediately if you’ve been hooked by a phisher. If you provided account numbers, PINS, or passwords to a phisher, notify the companies with whom you have the accounts right away. For information about how to put a “fraud alert” on your files at the credit reporting bureaus and other advice for ID theft victims, contact the Federal Trade Commission’s ID Theft Clearinghouse, www.consumer.gov/idtheft or 877-438-4338, TDD 202-326-2502.

How to Protect Your On-line Presence:

Let’s hope this never happens to you: You have a few free minutes so you decide to go on-line to check your brokerage account information. Your account balance is much lower than you expect – and you know that, at least for today, neither the market nor any of your securities fell in value. You see that there were several wire transfers of money from your account to an outside checking account. But you never authorized those transactions – instead, an identity thief did, and that thief has now stolen your cash as well as your personal information.

Like many investors, you may enjoy some of the conveniences of an on-line brokerage account, like checking your brokerage account information at any time of day or night, buying and selling securities, or even transferring money between your brokerage account and another account. But if you don’t take steps to protect your personal information when you go on-line, you could be telling your own story of identity theft.

How On-line Identity Theft Can Happen:

Many identity thieves use malicious software programs to attack vulnerable computers of on-line users. These software programs can monitor your computer activity and send information back to the thief’s computer. Sometimes, these programs will log your key strokes, which allows identity thieves to easily obtain user-name and password information for any of your on-line accounts, including your brokerage account.

How to Protect Your On-line Presence:

The purpose of this post is to the reader with a general discussion as to various way to protect your on-line presence. Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon for legal or investment advice. If you have any questions concerning this post, you should contact a qualified professional.

Identity thieves “phish” for your personal information. “Phishing” involves the use of fraudulent emails and copy-cat websites to trick you into revealing valuable personal information – such as your account number, your social security number, and the user-name and password information you use when accessing your account. Sometimes fraudsters will use phishing scams to try to get you to download keystroke logging or other malicious software programs unsuspectingly.

But not all identity thieves have gone “high tech.” Many still use less sophisticated ways of stealing your personal information, such as looking over your shoulder when you’re typing sensitive information or searching through your trash for confidential account information.

How to Protect Yourself On-line:

You’ll need to protect yourself against identity thieves, whether hackers, phishers, or snoops, when you use your on-line brokerage account. Here are a few suggestions on ways to keep your personal information and money more secure when you go on-line:

Beef Up Your Security. Personal firewalls and security software packages (with anti-virus, anti-spam, and spyware detection features) are a must-have for those who engage in on-line financial transactions. Make sure your computer has the latest security patches, and make sure that you access your on-line brokerage account only on a secure web page using encryption. The website address of a secure website connection starts with “https” instead of just “http” and has a key or closed padlock in the status bar (which typically appears in the lower right-hand corner of your screen).

Security Tip: Even if a web page starts with “https” and contains a key or closed padlock, it’s still possible that it may not be secure. Some phishers, for example, make spoofed websites which appear to have padlocks. To double-check, click on the padlock icon on the status bar to see the security certificate for the site. Following the “Issued to” in the pop-up window you should see the name matching the site you think you’re on. If the name differs, you are probably on a spoofed site.

Use a Security Token (if available). Using a security token can make it even harder for an identity thief to access your on-line brokerage account. That’s because these small number-generating devices offer a second layer of security – a one-time pass-code that typically changes every 30 or 60 seconds. These unpredictable pass-codes can frustrate identity thieves. While fraudsters can use keystroke logging programs to obtain regular user-name and password information, they can’t use these programs to obtain the security token pass-code. Ask your brokerage firm if you can protect your on-line account with a security token or similar security device.

Be Careful What You Download. When you download a program or file from an unknown source, you risk loading malicious software programs on your computer. Fraudsters often hide these programs within seemingly benign applications. Think twice before you click on a pop-up advertisement or download a “free” game or gadget.

Use Your Own Computer. It’s generally safer to access your on-line brokerage account from your own computer than from other computers. If you use a computer other than your own, for example, you won’t know if it contains viruses or spyware. If you do use another computer, be sure to delete all of the your “Temporary Internet Files” and clear all of your “History” after you log off your account.

Don’t Respond to Emails Requesting Personal Information. Legitimate entities will not ask you to provide or verify sensitive information through a non-secure means, such as email. If you have reason to believe that your financial institution actually does need personal information from you, pick up the phone and call the company yourself – using the number in your rolodex, not the one the email provides!

Security Tip: Even though a web address in an email may look legitimate, fraudsters can mask the true destination. Rather than merely clicking on a link provided in an email, type the web address into your browser yourself (or use a bookmark you previously created).

Be Smart About Your Password. The best passwords are ones that are difficult to guess. Try using a password that consists of a combination of numbers, letters (both upper case and lower case), punctuation, and special characters. You should change your password regularly and use a different password for each of your accounts. Don’t share your password with others and never reply to phishing emails with your password or other sensitive information. You also shouldn’t store your password on your computer. If you need to write down your password, store it in a secure, private place.

Use Extra Caution with Wireless Connections. Wireless networks may not provide as much security as wired Internet connections. In fact, many “hotspots” – wireless networks in public areas like airports, hotels and restaurants – reduce their security so it’s easier for individuals to access and use these wireless networks. Unless you use a security token, you may decide that accessing your on-line brokerage account through a wireless connection isn’t worth the security risk. You can learn more about security issues relating to wireless networks on the website of the Wi-Fi Alliance.

Log Out Completely. Closing or minimizing your browser or typing in a new web address when you’re done using your on-line account may not be enough to prevent others from gaining access to your account information. Instead, click on the “log out” button to terminate your on-line session. In addition, you shouldn’t permit your browser to “remember” your user-name and password information. If this browser feature is active, anyone using your computer will have access to your brokerage account information.

How to Know if Your Identity Has Been Stolen:

Sometimes, it can be extraordinarily difficult to determine whether someone has stolen your identity. If you take the steps below, you may be able to find out whether you’ve been victim of identity theft and protect yourself from further harm:

Read Your Statements. Don’t toss aside your monthly account statements! Read them thoroughly as soon as they arrive to make sure that all transactions shown are ones that you actually made, and check to see whether all of the transactions that you thought you made appear as well. Be sure that your brokerage firm has current contact information for you, including your mailing address and email address. If you see a mistake on your statement or don’t receive a statement, contact your brokerage firm immediately.

Monitor Your Credit Report. Reviewing your credit report may alert you to unauthorized activity, and, therefore, can be an effective way to fight identity theft. You can obtain a free credit report every 12 months from three different credit bureaus by contacting the Annual Credit Report Request Service.

Investor Tip: Read your brokerage account agreement carefully because many firms take the position that you are responsible for the security of your account information, such as your user-name, password, and account number. In addition, your brokerage account agreement may provide information about what specific steps you should take if you notice any unauthorized account activity.

What to Do if You Run into Trouble

Always act quickly when you come face to face with a potential fraud, especially if you’ve lost money or believe your identity has been stolen.

Identity Theft. If you think that your personal information has been stolen, visit the Federal Trade Commission’s Identity Theft Resource Center at www.consumer.gov/idtheft/index.html for information on how to file a complaint and control the damage.

Securities Scams. Before you do business with any investment-related firm or individual, do your own independent research to check out their background and confirm whether they are legitimate.

Phishy Emails. If a phishing scam rolls into your email box, be sure to tell the company right away. You can also report the scam to the FBI’s Internet Fraud Complaint Center at http://www.ifccfbi.gov/. If the email purports to come from a brokerage firm or mutual fund company, be sure to pass along that tip to the SEC’s Enforcement Division by forwarding the email to [email protected].

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.