SEC Obtains Sanctions Against Lek Securities and CEO, Including Bar Against CEO
Litigation Release No. 24639 / October 10, 2019
Securities and Exchange Commission v. Lek Securities Corp., et al., No. 17-cv-1789 (S.D.N.Y. filed March 10, 2017)
On October 1, 2019, a federal court judge entered final judgments against New York-based brokerage firm Lek Securities Corp. and Chief Executive Officer Sam Lek, who were charged by the Securities and Exchange Commission with facilitating manipulative U.S. trading by a Ukraine-based firm over a three-year period.
The SEC's complaint, filed in March 2017, alleged that Lek Securities and Sam Lek helped facilitate manipulative trading schemes by its customer, Avalon FA Ltd., headquartered in Kiev. According to the complaint, Avalon illegally profited from layering, which involved placing and canceling orders to trick others into buying or selling stocks at artificial prices, and cross-market manipulation, which involved buying or selling stocks to artificially impact options prices. The SEC's complaint alleged that Lek Securities and Sam Lek made the schemes possible by giving Avalon access to the U.S. markets, relaxing the brokerage firm's layering controls after Avalon complained, allowing Avalon to conduct the trading activity, and improving Lek Securities' technology to assist Avalon's trading.
The Honorable Denise L. Cote for the U.S. District Court for the Southern District of New York entered the final judgments by consent. Lek Securities agreed to a three-year injunction requiring it to terminate business with foreign customers potentially engaged in market manipulation or manipulative trading and largely prohibiting it from providing intra-day trading to foreign customers. Lek Securities also agreed to retain an independent compliance monitor for a three-year period and, along with Sam Lek, agreed to permanent injunctions from violating the antifraud and manipulative trading provisions of Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. Lek Securities will pay a $1 million penalty, plus $525,892 in disgorgement and prejudgment interest, and Sam Lek will pay a $420,000 penalty.
Lek Securities also agreed to a censure, and Sam Lek agreed to associational and penny stock bars with a right to reapply after ten years. In settling the SEC's charges, Lek Securities and Sam Lek admit that as alleged in the SEC's complaint, Avalon's trading activity through Lek Securities constituted violations of the federal securities laws.
The litigation, which is being handled by David J. Gottesman, Olivia S. Choe, and Sarah S. Nilson, is continuing against Avalon and individuals associated with it. The SEC's investigation was conducted by Ms. Nilson, Owen A. Granke, and Carolyn Welshhans, and supervised by Melissa R. Hodgman and Antonia Chion.