September 4, 2014 — Investors must be able to trust their brokers to manage their portfolios in an ethical manner. When instead, brokerage firms actually steal profits from their own customers, the financial fraud whistleblower program established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 should be notified. Informants who collaborate with the Securities and Exchange Commission (SEC) about firms that steal from and defraud their customers may be rewarded. Tipsters receive rewards amounting to as much as thirty percent of the amount the government recovers, provided it tops $1 million.
Linkbrokers Derivatives LLC To Pay $14 Million To Settle SEC Charges That Firm Customers Were Cheated With Undisclosed Markups And Markdowns
Linkbrokers Derivatives LLC, a brokerage firm based in New York, has been charged with pocketing over $18 million in secret profits derived by adding undisclosed markups and markdowns to its customers’ trades.
Between 2005 and 2009, Linkbrokers’ representatives working on the cash equity desk swindled customers by claiming to impose very low fees for commissions when in fact Linkbrokers was charging fees sometimes more than 1000% higher than customers were told. To conceal the actual amount of the fees extracted, the brokers lied about the prices at which shares had been bought or sold. By charging the markups and markdowns when the market was particularly volatile, the brokers made it quite difficult for customers to discover the scam. The amount of the hidden markups and markdowns varied from just a few dollars to over $200,000.
Furthering their investment fraud, Linkbrokers also profited by outright stealing a share of its customers’ trades. When limit orders were placed to buy or sell shares at a specified amount, the brokers in fact completed the orders at the customers’ limit price, but told the customers that they were unable to fill the order. Then, the brokers simply watched the price of the stocks, making profitable sales and purchases and keeping the proceeds for Linkbrokers. Customers’ positions remained static.
Linkbrokers will pay $14 million to resolve the SEC’s charges. Three former brokers with Linkbrokers have agreed to settle related charges by paying more than $4 million in disgorgement plus interest. The SEC is still pursuing its charges against a fourth former broker.
Whistleblowers Notify SEC About Brokerage Firm Misconduct
While Waters & Kraus is not handling this particular investment fraud case, we are representing whistleblowers in similar matters involving the fraudulent deception of innocent investors. If you have comparable claims against your employer or another business, email us or call our qui tam attorneys at 855.784.0268 to learn more about our practice and how we can collaborate throughout the Dodd-Frank whistleblower process. Our experienced attorneys, such as George Tankard and Anne Izzo, qui tam lawyers in the firm’s Maryland office, protect and advance tipsters’ interests.