U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23516 / April 12, 2016
Securities and Exchange Commission v. Khaled "Kal" Bassily, Civil Action No. 16-cv-2733 (S.D.N.Y., filed April 12, 2016)
SEC Charges Former Head of Transition Management Group in Fraudulent Scheme
The Securities and Exchange Commission filed a civil injunctive action on April 12, 2016, in the United States District Court for the Southern District of New York against Khaled "Kal" Bassily, the former head of ConvergEx Execution Solutions LLC's Global Transition Management ("GTM") group, for his participation in a fraudulent scheme to hide from customers that they paid substantially higher amounts than disclosed for the execution of trading orders.
The Commission's complaint alleges that over the course of approximately five years, Bassily took steps to conceal from transition management customers the routine practice of routing their brokerage orders to an offshore affiliate to take hidden charges that were embedded in the price customers paid to buy and sell securities. The customers included charities, religious organizations and retirement funds. The complaint alleges that the hidden charges, known as "trading profits" or "TP," were in addition to and often substantially higher than the commissions paid by customers to have their orders executed. As alleged in the complaint, one customer paid $600,000 in commissions for certain trades placed through GTM, but also unknowingly paid $9.6 million in hidden TP on those same trades.
According to the complaint, Bassily engaged in, and directed and encouraged others to engage in, repeated deceptive acts designed to create a false impression regarding the costs paid by the customers. The deceptive acts included false and misleading statements to customers and scheming with traders who were executing customer orders in order to maximize TP, while minimizing the risk that customers would detect the hidden charge. The complaint also alleges that Bassily encouraged the use of technological tools to hide TP from a customer, helped to secure false business cards for a trader to use when pitching business to a prospective customer and assisted in drafting false and misleading marketing materials.
The complaint alleges that Bassily violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and alternatively, that he violated Exchange Act Section 10(b) and Rule 10b-5(b) through or by means of others in violation of Exchange Act Section 20(b), Bassily aided and abetted violations of Exchange Act Sections 15(c)(1) and 10(b) and Rule 10b-5 thereunder, and Bassily violated Sections 17(a)(1) and (3) of the Securities Act of 1933. The Commission seeks permanent injunctions, disgorgement with interest and civil penalties.
The Commission's charges follow those announced in August 2014 against Anthony G. Blumberg, a former executive of a ConvergEx Group subsidiary, in a federal action currently pending in Newark, N.J., and charges announced in December 2013 against three ConvergEx Group subsidiaries that agreed to pay more than $107 million and admit wrongdoing to settle the matter. Two former employees and a former executive of another ConvergEx Group subsidiary have settled charges with the Commission related to this scheme.
The Commission's investigation has been conducted by Sarah L. Allgeier, Richard E. Johnston and Thomas D. Manganello, and supervised by Stephen L. Cohen and Jennifer S. Leete. Litigation is being led by Thomas A. Bednar. The Commission 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.
