SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18329 / September 8, 2003
SECURITIES AND EXCHANGE COMMISSION v. BRIAN P. DELANEY, et al., No. 03-4206 (JWB) (D.N.J.)
SEC CHARGES THREE FORMER TRADERS AT KNIGHT SECURITIES WITH ENGAGING IN FRAUDULENT TRADING SCHEME
On September 8, 2003, the Securities and Exchange Commission filed a complaint in the United States District Court for the District of New Jersey charging three former traders at Knight Securities, L.P. - Brian P. Delaney of New Jersey, Nicole M. Shkedi of New Jersey, and Thomas J. Donovan of New York - with engaging in a trading scheme that defrauded Knight of approximately $1.4 million. The Commission also issued a related administrative order charging a fourth individual - Charles C. Campbell of New Jersey - with being a cause of the violations by two of the former Knight traders. Delaney, Shkedi, and Campbell each settled the proceedings against them without admitting or denying the Commission's charges, while Donovan is contesting the charges.
In its complaint in federal court, the Commission alleged that Delaney, Shkedi, and Donovan were all formerly employed by Knight as equity traders responsible for making markets in specific equity securities. The Commission further alleged that, as equity traders, the defendants had discretionary trading authority over Knight trading accounts maintained for the purpose of carrying out Knight's business as a market maker in these specific stocks. According to the Commission, from at least March 2001 through February 2002, the three former traders abused their positions at Knight by knowingly and intentionally executing fraudulent stock trades from the Knight proprietary accounts they controlled at prices guaranteed to generate profits in private brokerage accounts that they also controlled. The Commission alleged that the defendants' trading scheme defrauded Knight of approximately $1.4 million, which Knight has since recovered from Delaney.
The complaint charges Delaney, Shkedi, and Donovan with committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 (the "Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5. Without admitting or denying the Commission's allegations, Delaney and Shkedi have consented to the court's entry of final judgments that would permanently enjoin them from violating the foregoing provisions of the securities laws, as well as to the Commission's issuance of administrative orders that would bar them from associating with any registered broker or dealer based on the federal court's anticipated entry of injunctions against them. Shkedi also has consented to pay $25,000 in civil penalties, half of which would be paid to the New Jersey Bureau of Securities, which has filed contemporaneous charges against Delaney, Shkedi, and Donovan. The Commission is seeking a permanent injunction, disgorgement of unlawful gains, and civil penalties against Donovan, who is contesting the Commission's charges.
In its administrative order against Campbell, the Commission found that Campbell opened an online brokerage account which he knew or should have known was being used by two of the former Knight traders to facilitate their unlawful trading scheme, that Campbell was an indirect beneficiary of the fraudulent trading in the account, and that Campbell was therefore a cause of the securities law violations by those two former Knight traders. Based on these findings, the Commission ordered Campbell to cease and desist from committing or causing such violations in the future. Campbell consented to issuance of the Commission's order without admitting or denying the Commission's findings. See Exchange Act Release No. 34-48458 (September 8, 2003).
In a related criminal case, the United States Attorney for the District of New Jersey charged Delaney with wire fraud and conspiracy in connection with the trading scheme alleged in the Commission's complaint. On September 8, 2003, Delaney entered a guilty plea to such charges.
The Commission acknowledges the assistance of the both the United States Attorney's Office and the New Jersey Bureau of Securities in the investigation of this matter.