U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23923 / August 29, 2017
Securities and Exchange Commission v. Lek Securities Corp. et al., No. 17-cv-1789 (S.D.N.Y. filed March 10, 2017)
Court Denies Broker's Attempt to Dismiss Market Manipulation Claims
On August 25, 2017, the Honorable Denise L. Cote of the U.S. District Court for the Southern District of New York denied a motion by Lek Securities Corporation and its Chief Executive Officer, Samuel Lek, to dismiss the SEC's claims in an ongoing market manipulation litigation. The SEC's complaint, filed in March 2017, alleges that Lek Securities and Samuel Lek aided and abetted manipulative trading schemes by one of Lek Securities' customers, Ukraine-based trading firm Avalon FA Ltd, Avalon's owner Nathan Fayyer, and its alleged undisclosed control person, Sergey Pustelnik.
The Court denied the Lek defendants' motion to dismiss in its entirety, rejecting their arguments that the trading schemes at issue in the Complaint were not manipulative. The SEC's complaint alleges two types of manipulative trading, layering and cross-market manipulation. Layering involves the entry of "non-bona fide" orders (orders that the trader allegedly does not intend to execute and that have no legitimate economic reason) to trick others into trading at artificial prices. The cross-market manipulation involves buying and selling stocks at a loss, allegedly for the purpose of moving the prices of corresponding options, so that Avalon could make a profit by trading those options at artificial prices.
The Court found that the two alleged manipulative trading schemes-if proven-would violate Sections 10(b) and 9(a)(2) of the Exchange Act and Section 17(a)(1) of the Securities Act. The Court also concluded that the SEC properly alleged, for the purpose of stating a claim, that Lek Securities and Samuel Lek aided and abetted Avalon's manipulative trading schemes.
The litigation is being led by David J. Gottesman, Olivia S. Choe, and Sarah S. Nilson. The SEC's investigation was conducted by Ms. Nilson, Owen A. Granke and Carolyn Welshhans, and was supervised by Melissa Hodgman, Antonia Chion, and Robert A. Cohen. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.
The litigation is ongoing. For additional information, see Litigation Release No. 23776 (Mar. 10, 2017).