Next Score View the next score

    NY brokerage settles with SEC

    NEW YORK — A New York-based brokerage allowed overseas clients to run a scheme aimed at distorting stock prices by rapidly canceling orders, according to the Securities and Exchange Commission.

    Clients of Hold Brothers On-Line Investment Services were ‘‘repeatedly manipulating publicly traded stocks’’ by placing and erasing orders in an illegal strategy designed to trick others into buying or selling, the SEC said Tuesday in a release. Hold Brothers, its owners, and the foreign firms Trade Alpha Corporate and Demonstrate agreed to settle allegations that the New York broker failed to supervise customers and pay $4 million in total SEC fines.

    The SEC complaint targeted practices that abused high-speed computer trading on American equity venues. As high-frequency activity has grown in recent years, the agency’s efforts to stop fraudulent practices such as ‘‘layering’’ or ‘‘spoofing’’ have extended to the automated trading tactics.


    ‘‘Direct access firms like these are the gatekeeper to our markets,’’ Sang Lee, managing partner at research firm Aite Group in Boston, said Tuesday in a phone interview. ‘‘That’s why the SEC is doing this. This is certainly the area that they need to focus on, and on a larger scale.’’

    Get Talking Points in your inbox:
    An afternoon recap of the day’s most important business news, delivered weekdays.
    Thank you for signing up! Sign up for more newsletters here

    Along with Hold Brothers, the SEC charged its cofounder and president, Steve Hold, who created and partially owned Trade Alpha and Demonstrate, according to Tuesday’s release. Robert Vallone, a former chief compliance officer and chief financial officer, and William Tobias, another executive, were also charged and agreed to the penalties.

    A phone call to the Hold Brothers main number and an e-mail to the general media address weren’t immediately returned.

    The SEC described layering as placing an order with no intention of having it executed in an effort to deceive others into paying an ‘‘artificial price’’ for a security. Hold Brothers executives were aware of e-mails and other indications that manipulative trading was happening and ‘‘recklessly continued’’ to provide the firms access, it said.

    The trading occurred from at least January 2009 to September 2010, the agency said.


    The Financial Industry Regulatory Authority and exchanges owned by Nasdaq OMX Group, NYSE Euronext and Bats Global Markets Inc. fined Hold Brothers $3.4 million for manipulative trading activities and other violations, bringing the total fines to the broker to more than $5.9 million.

    Regulators have required brokers to tighten controls when they give clients direct access to markets, warning that so- called sub-accounts can be used to hide wrongdoing. The SEC implemented the rule in July 2011 directing firms to limit risks associated with direct access. The rule ended unsupervised trading, or ‘‘naked access,’’ to markets.