SEC CHARGES SIX INDIVIDUALS WITH SPOOFING

The SEC filed four
cases today against six individuals who engaged in a
fraudulent trading practice known as “spoofing.”  Spoofing
occurs when a person trading in the stock markets uses a
displayed limit order to manipulate prices, typically in The
Nasdaq Stock Market, and thereby obtains an improper trading
advantage.

     The specific actions filed by the Commission today
include complaints and settlements involving Israel Shenker;
Joseph Blackwell, Timothy Blackwell, Bradford Blackwell; and
Leonid Shpilsky in three separate cases.  All these
individuals agreed, without admitting or denying the
Commission’s allegations, to cease and desist or be
permanently enjoined from violating the Section 17(a) of the
Securities Act of 1933 and Section 10(b) of the Securities
Exchange Act of 1934.  Collectively, these individuals will
pay $43,860.63 in disgorgement, prejudgment interest and
civil penalties.  The civil action against Shpilsky also
names two other individuals as relief defendants, who will
pay a total of $13,430 in disgorgement and prejudgment
interest.

      The Commission also filed a complaint against
Alexander Pomper alleging that he engaged in a manipulative
spoofing strategy designed to obtain fraudulent price
improvements in Nasdaq stocks.  The complaint seeks an order
permanently enjoining Pomper from future violations of the
above-referenced antifraud provisions, and seeks
disgorgement, prejudgment interest and a civil penalty.

     “Spoofing misuses rules that protect investors, and it
defrauds market makers.  These cases today make clear that
the Commission will take strong action against spoofing,
even in cases involving relatively small profits.  Were
spoofing to become widespread, it could reduce liquidity for
bona fide investors,” said Thomas C. Newkirk, Associate
Director in the Commission’s Division of Enforcement.

     The assistance of the National Association of
Securities Dealers (NASD) in these matters is acknowledged.
To date, the Commission has brought six actions against
spoofing and the NASD has brought seven actions against
spoofing.

     Background

     Stock prices on Nasdaq are quoted in the form of bid
and offer prices.  The bid price is a proposal to purchase
at a specified price, and the offer price is a proposal to
sell at a specified price.  The highest bid and lowest offer
prices quoted Nasdaq are displayed publicly as the “National
Best Bid and Offer” or NBBO.  Market-making firms on Nasdaq
regard the NBBO as an important indicator of the prices they
should provide to their customers, and often guarantee
customers that their orders will be given the NBBO prices,
at a minimum, for smaller orders.  In other words, a
customer seeking to sell stock will receive at least the bid
price shown in the NBBO and a customer seeking to buy will
pay not more than the offer price shown in the NBBO.

     The SEC’s Limit Order Display Rule generally requires
that market makers display customer limit orders of 100
shares or more. if the price of the limit order is better
than the previously displayed NBBO.  A customer limit order
with a superior price changes the NBBO when displayed, by
either raising the bid side or lowering the offer side of
the NBBO.

     A trader engaged in spoofing typically places a limit
order for the purchase or sale of a thinly-traded Nasdaq
security that is for a better price than the then-current
NBBO.  This generally results in the limit order being
publicly displayed, which changes the NBBO by improving
prices on one side of the market.  The trader proceeds by
immediately obtaining execution through other market making
firms of one or more other orders on the opposite side of
the market at the improved price, and then endeavors to
cancel the initial limit order.

     For example, the Commission’s complaint against
Alexander Pomper alleges that Pomper placed a limit order to
buy 300 shares of Gumtech International (“GUMM”) at $11.375
per share when the best bid side of the NBBO was $11.0625
per share and the best offer side was $11.4375 per share.
Due to the Limit Order Display Rule, Pomper’s $11.375 per
share buy order became the new best bid price.  Pomper then
placed an order to sell 2000 shares of GUMM at $11.375 per
share through another market making firm.  Pomper obtained
immediate execution at $11.375 per share (rather than
$11.0625 per share) because the other market maker honored
the $11.375 best bid price created by Pomper’s buy order.
After Pomper obtained his price improvement of $.3125 per
share, or $625.00, he canceled his order to buy at $11.375.
Pomper’s conduct was deceptive because he improved the NBBO
with a limit order he did not actually want filled.

     By engaging in these manipulative practices, “spoofers”
cause market makers to buy or sell stock at prices that were
created by a deception.  Spoofing undermines the integrity
of the prices quoted by the market makers by inserting into
the NBBO prices that do not reflect bona fide proposals to
trade.  It improperly injures market makers, and violates
the federal securities laws.