U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23061 / August 7, 2014
Securities and Exchange Commission v. Anthony G. Blumberg, Civil Action No. 2:14-cv-04962-FSH-MAH
SEC Charges Former CEO of Convergex Subsidiary in Scheme to Deceive Customers About Trading Fees
The Securities and Exchange Commission today charged the former chief executive officer of a broker-dealer subsidiary of ConvergEx Group LLC for deceiving brokerage customers with hidden fees to buy and sell securities.
The SEC’s complaint alleges that the former CEO, Anthony G. Blumberg, engaged in a scheme that entailed concealing the practice of routing orders to an offshore affiliate in Bermuda to add mark-ups or mark-downs. The hidden fees known as “trading profits” or “TP” were in addition to and often much higher than the commissions paid by customers to have their orders executed.
The charges against Blumberg follow those announced in December by the SEC against three ConvergEx subsidiaries that agreed to pay more than $107 million and admit wrongdoing to settle the matter. Two former employees also settled charges with the SEC.
According to the SEC’s complaint filed against Blumberg in federal court in Newark, N.J., one university customer paid about $93,000 in disclosed commissions and about $543,000 in undisclosed TP. 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.
The U.S. Department of Justice today announced parallel criminal charges against Blumberg. In the prior parallel criminal proceeding announced in December, ConvergEx Group and its Bermuda broker-dealer agreed to pay $43.8 million, and the two former employees named in the SEC case pleaded guilty in the criminal case.
ConvergEx has since shut down trading operations at the Bermuda broker-dealer subsidiary ConvergEx Global Markets Limited. Blumberg was CEO of ConvergEx Global Markets Limited and ConvergEx Global Markets, which included a unit of U.S. broker G-Trade Services LLC.
The SEC’s complaint alleges that Blumberg directed employees to suspend the taking of TP when customers were monitoring execution prices. Blumberg made false and misleading statements to a brokerage customer and authorized employees to falsify trading data for customers who inquired about the details of their securities transactions.
The SEC’s complaint alleges that Blumberg violated the antifraud provisions of the federal securities laws and an SEC antifraud rule. The complaint further alleges liability as a control person and aiding and abetting violations by certain ConvergEx subsidiaries and former employees. The SEC is seeking disgorgement of any ill-gotten gains with interest, a financial penalty, and permanent injunctive relief.
The SEC’s investigation, which is continuing, has been conducted by Sarah L. Allgeier, Richard E. Johnston, and Thomas D. Manganello under the supervision of Jennifer S. Leete. The litigation will be led by Cheryl L. Crumpton and Kyle M. DeYoung. The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice’s Criminal Division, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service.
# # #