NEWARK, N.J. (AP) — The New York-based brokerage ConvergEx Group will pay $150 million to settle civil and criminal charges that it charged clients millions of dollars in unwarranted fees and hid the practice from investors, the Justice Department said Wednesday.
Broker-dealers at the company told clients they charged explicit commissions. Instead, authorities said, they routed the trades through a subsidiary in Bermuda that added markups or markdowns on securities. Because of the markups, some clients were charged more than double what they should have been paying.
Once the trade was done, employees would falsify what happened, faking transaction reports, lying about the price at which shares were purchased or sold and disabling customers' real-time tracking software, authorities charge. They would change if a share was marked up or marked down depending on how closely brokers thought clients were monitoring their investments and the sophistication of an investor or investment, officials said.
"ConvergEx and its traders, plain and simple, lied to their clients to hide that they were stealing their money," said Mythili Raman, acting assistant attorney general for the Justice Department's criminal division.
The brokerage will pay $107 million to settle charges with the Securities and Exchange Commission and $43.8 million in criminal penalties and restitution to resolve a complaint by the Justice Department. The firm was charged with one count of conspiracy to commit securities fraud and one count of wire fraud.
Two former ConvergEx employees also pleaded guilty Wednesday in federal court in Newark to conspiracy to commit securities and wire fraud. Jonathan Daspin faces as many as 30 years in prison and Thomas Lekargeren five years.
In a statement, ConvergEx said that the scheme was disbanded two years ago and that the employees have been fired. It said fewer than 5 percent of its equity execution clients and 1 percent of orders were routed to Bermuda. The agreement was reached with three of the company's subsidiaries; others were not party to the settlement.
The company said it has taken steps to prevent any such misconduct in the future. "The credibility of our company and the trust our clients place in us have always been our most sacred assets," said ConvergEx Chairman and CEO Joseph M. Velli. "By resolving these matters, we have accepted responsibility and deeply apologize to those customers who were adversely affected."
According to the Justice Department, the company will pay $12.8 million in restitution to defrauded customers.