ConvergEx Subsidiaries Caught Raiding the Cookie Jar by US Authorities

In yet another case of 'questionable at best, fraudulent at worst' practises - a prominent brokerage offering securities broker-dealing services on US stocks has been penalized for defrauding dozens of clients between 2006 and 2011.

US authorities have announced that a brokerage subsidiary of ConvergEx Group LLC has been convicted and ordered to pay a criminal penalty of $26 million for wire fraud and conspiracy to commit securities fraud. Having already been charged with a series of improprieties relating to millions in excess fees, ConvergEx admitted to the charges last year.

In a coordinated investigation and subsequent prosecution by the US Justice Department, Federal Bureau of Investigation (FBI) and US Postal Inspection Service (USPIS), it has come to light that ‘CGM Limited’, a ConvergEx subsidiary “defrauded their clients by brazenly and repeatedly lying to them and then siphoning off millions of dollars through hidden fees,” said Assistant Attorney General Leslie Caldwell.

More specifically, the broker hid earnings, fabricated transaction reports and provided clients with false details regarding their orders to boost profitability. Assistant Director at the FBI, Andrew G. McCabe said, “The FBI will continue to work with our partners to investigate complex international financial crimes and send a message that complete transparency is a requirement in the global trading market.”

ConvergEx Global Markets Limited (CGM Limited), a former broker-dealer registered in Bermuda has already pleaded guilty to the charges on December 18th, 2013. In tandem with its parent company, CGM and ConvergEx entered into a ‘deferred prosecution agreement’ in December last year, and agreed to pay a criminal penalty of $18 million, forfeiting $12.8 million and a further $12 million in client restitution costs.

CGM Limited and ConvergEx Group are paying almost $44 million in criminal penalties and restitution. In total, three subsidiaries of ConvergEx Group have agreed to pay more than $107 million and admit wrongdoing to settle the SEC’s charges.

The Modus Operandi

It is alleged (and admitted) that ConvergEx broker-dealers manipulated order routing to enable securities’ trades to go offshore to Bermuda-based CGM. The trades were then marked up or down depending on the most advantagoes course of action for the broker, without being disclosed to clients or Compliance teams.

To hide the increased fees, the brokerage duo conjured up false transaction reports which were then sent to fabricated clients who did not exist. The US Justice Department estimates CGM took approximately $12.8 million in trading profits from such clients.

CGM Limited admitted that its employees engaged in other fraudulent activities. Late last year, Jonathan Daspin, the head trader at CGM Limited, and Thomas Lekargeren, a sales trader at a different ConvergEx Group subsidiary, each pleaded guilty to conspiracy to commit securities and wire fraud.

Earlier this year in August, Anthony Blumberg, the former CEO of CGM Limited, and Craig Marshall, a former trader at CGM Limited, were both charged with a mixture of fraud and conspiracy charges by the US Justice Department.

Before CGM, Mr. Daspin worked at Credit Lyonnais Securities in New York between 1992-2002. Since the securities fraud revelations hit in 2012, and being forced to leave securities dealing, Mr. Daspin now plies his trade in the corrugated packaging business as a packaging Sales Representative for Bell Container Corp. A long way from Wall Street to be sure.