Court Denies Brokers' Attempt to Dismiss Commission-Splitting Claims
Litigation Release No. 24591 / Sept. 13, 2019
Securities and Exchange Commission v. Adam Mattessich and Joseph (a/k/a Jay) Ludovico, No. 18-cv-5884 (S.D.N.Y. filed June 29, 2018)
On September 9, 2019, the Honorable Katherine Polk Failla of the U.S. District Court for the Southern District of New York denied a motion by Adam Mattessich and Joseph "Jay" Ludovico to dismiss the SEC's claims in an ongoing litigation concerning an off-book commission-splitting scheme involving Mattessich, Ludovico, and others traders at their former employer, Cantor Fitzgerald & Co. The SEC's complaint, filed in June 2018, alleges Mattessich and Ludovico aided and abetted books-and-records violations by Cantor Fitzgerald concerning trader compensation by using personal checks to split commissions on certain accounts, in violation of the firm's policies and procedures.
The court denied the motion in its entirety, rejecting the defendants' arguments that the SEC's complaint failed to allege Cantor Fitzgerald's violation or aiding and abetting violations by Mattessich or Ludovico. Instead, in a matter of first impression, the court found the SEC alleged, for the purpose of stating a claim, a primary violation of Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-3(a)(19)(i) thereunder by Cantor Fitzgerald because, as alleged, the firm's books and records did not reflect all transaction-level commissions "attributable" to each broker as a result of Mattessich's and Ludovico's off-book payment scheme. The court further found the SEC adequately pleaded that Mattessich and Ludovico knowingly aided and abetted Cantor Fitzgerald's violation by alleging they knew their conduct was prohibited by firm policy and continued to write and deposit personal checks in order to effect commission splits for certain customer accounts.
The SEC's investigation was conducted by Philip A. Fortino, Lee A. Greenwood, John O. Enright, Christopher Ferrante, and Sheldon L. Pollock of the New York office. The SEC's litigation against Mattessich and Ludovico is being handled by Messrs. Fortino, Greenwood, and Enright. The case is being supervised by Sanjay Wadhwa.
The litigation is ongoing. For additional information, see Litigation Release No. 24179 (June 29, 2018).