U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18926 / October 7, 2004
SEC v. Stanley Awdisho, Michael Kundrat and Kristopher Smolinski, Civil Action No. 04 C 6125 (N.D. Ill., filed September 21, 2004)
FINAL JUDGMENTS ENTERED AGAINST THREE INDIVIDUALS FOR ENGAGING IN MANIPULATIVE TRADING SCHEME
The Securities and Exchange Commission announced that the Honorable John W. Darrah, United States District Court Judge for the Northern District of Illinois, entered Final Judgments against defendants Stanley Awdisho, Michael Kundrat and Kristopher Smolinski on September 29, 2004. The Final Judgments, to which the defendants consented without admitting or denying the allegations of the Commission's Complaint, permanently enjoin Awdisho, Kundrat and Smolinski from future violations of Sections 9(a)(2) and 10(b)(5) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, the antimanipulation and antifraud provisions of the Exchange Act. The Final Judgments also order Awdisho and Kundrat each to pay a $10,000 civil penalty and order Smolinski to pay a $20,000 civil penalty.
The Commission's Complaint, filed on September 21, alleges that approximately 75 times between September and December of 1999, Awdisho, Kundrat and Smolinski each manipulated the price of stock options by engaging in a scheme commonly referred to as "small lot baiting." Small lot baiting or "spoofing" involves an order placed by a market participant with the intention of briefly triggering a market movement from which the participant or others may benefit by trading the opposite side of the original manipulative order. The Complaint further alleges that to carry out the scheme, Awdisho, Kundrat and Smolinski placed limit orders for a small number of options contracts on one options exchange to artificially raise or lower that exchange's quoted bid or offer. Awdisho, Kundrat and Smolinski then purchased or sold much larger opposite positions on other exchanges that matched the artificially raised or depressed price displayed at the first exchange. After their larger orders were executed, Awdisho, Kundrat and Smolinski immediately sent an order to cancel the initial bait order. The Complaint alleges that, as a result of the scheme, Awdisho, Kundrat and Smolinski unfairly profited at least $25,000 by obtaining execution of their larger orders at more favorable prices than otherwise available in the market.
For further information, see Litigation Release No. 18894 (September 23, 2004)