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SEC Announces Charges for Spoofing and Order Mismarking


Washington D.C., Dec. 3, 2015 —

The Securities and Exchange Commission today announced fraud charges against three Chicago-based traders accused of circumventing market structure rules in a pair of options trading schemes.

The SEC Enforcement Division alleges that twin brothers Behruz Afshar and Shahryar Afshar and their friend and former broker Richard Kenny mismarked option orders to obtain execution priority and lower fees, and engaged in manipulative trading known as “spoofing” to generate liquidity rebates from an options exchange.

“We allege that the Afshar brothers and Kenny fraudulently mismarked their orders to obtain benefits that they were not entitled to receive, and engaged in spoofing to collect liquidity rebates.  This alleged scheme deceived the options exchanges, disadvantaged other market participants, and undermined the fair operation of the U.S. securities markets,” said Andrew Ceresney, Director of the SEC Enforcement Division. 

Robert A. Cohen, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, added, “We allege that these individuals tricked the exchanges into giving them benefits not meant for professional traders, and fooled other market participants by spoofing the market with non-bona fide orders.”

In an order instituting an administrative proceeding, the SEC Enforcement Division alleges:

Mismarking of Options Orders

  • Options exchange rules provide that a non-broker-dealer that places more than 390 orders in options per day (on average) – whether executed or not – during any calendar month in a quarter will be designated as a “professional” for the next quarter.  
  • Conversely, a “customer” is a non-broker-dealer that does not exceed the 390-order threshold for each calendar month in a quarter. 
  • Despite far exceeding the 390-order threshold for every quarter from October 2010 to December 2012, the Afshars’ accounts (in the names of Fineline Trading Group LLC and Makino Capital LLC) were able to continually place “customer” orders throughout this time period by alternating their trading on a quarterly basis between accounts. 
  • When one account was “professional” for an upcoming quarter, they switched their trading to the other account, which was designated as “customer.”  They then switched back the following quarter. 
  • The “customer” and “professional” designations are supposed to apply to all accounts beneficially owned by the trader.  However, the Afshars and Kenny accomplished this back-and-forth scheme through false representations that Behruz solely owned Fineline and that Shahryar solely owned Makino, despite the fact that Behruz had an ownership interest in both companies. 


  • From May 2011 to December 2012, the spoofing scheme was designed to take advantage of the “maker-taker” program offered by an options exchange.
  • Under the maker-taker program, an order that is sent to an exchange and executes against a subsequently received order generates a “maker” rebate from the exchange.  In contrast, an order that immediately executes against a pre-existing order is charged a “take” fee. 
  • The Afshars and Kenny carried out the scheme by using All-Or-None (AON) options orders – hidden orders that must be executed in their entirety or not at all – and placing smaller, non-bona fide displayed orders in the same option series and price as the AON orders, but on the opposite side of the market. 
  • The smaller orders were not intended to be executed but instead were placed to alter the option’s best bid or offer in order to induce, or spoof, other market participants into placing orders at the same price. 
  • Those orders from other market participants executed against the Afshars’ hidden AON orders, and any open displayed orders were then canceled. 
  • Because the executed AON orders existed before the orders sent by the spoofed counterparties, they were deemed to have added liquidity and generated rebates for the accounts of Fineline and Makino.

The SEC Enforcement Division alleges that Behruz, Shahryar, Kenny, Fineline, and Makino violated Section 17(a) of the Securities Act as well as Sections 9(a)(2) and 10(b) of the Exchange Act and Rule 10b-5.  The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.   

The SEC Enforcement Division’s investigation was conducted by Paul E. Kim and Deborah A. Tarasevich of the Market Abuse Unit with assistance from Mandy B. Sturmfelz and Ainsley Kerr and economists Michael Barnes and Carmen Taveras.  The case was supervised by Mr. Cohen.  The litigation will be led by Melissa Armstrong, Frederick L. Block, and Mr. Kim.

The SEC appreciates the assistance of the Financial Industry Regulatory Authority.


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