BroCo Investments Inc. alleged to have manipulated client positions

It’s an odd piece of news that just broke: SEC has announced that it obtained an order to freeze the assets

It’s an odd piece of news that just broke: SEC has announced that it obtained an order to freeze the assets of BroCo Investments Inc. and its owner Valery Maltsev. BroCo Company is a pretty large and known Russian broker which offers multiple investment products in addition to Forex. However it is unclear what is the relationship between BroCo Investments Inc. and BroCo Company itself and reading the texts below I believe it used as a US subsidiary for BroCo to either collect profits made from US activity or introduce clients to Genesis Securities LLC (a local partner of BroCo or its gateway to the US stock markets) or both.

What’s most amazing here is what SEC alleges that happened and I highlighted it in Bold within the SEC’s release below:

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On Monday, March 15, 2010, the United Securities and Exchange Commission filed an emergency action in the United States District Court for the Southern District of New York to freeze the assets of Defendants, located in Russia, responsible for a hi-tech market manipulation scheme. The Honorable Richard J. Holwell, granted the Commission’s request to freeze the Defendants’ assets pending a preliminary hearing, including an account that holds assets in excess of $500,000.

The Commission’s complaint alleges that BroCo Investments, Inc., its president Valery Maltsev, and/or individuals acting in concert with them hijacked the online brokerage accounts of unwitting investors using stolen usernames and passwords and subsequently placed unauthorized trades through the compromised accounts to manipulate the markets of at least thirty-eight issuers between August 2009 and December 2009. In almost every instance, prior to intruding into these accounts, the Defendants acquired positions in their own account. Then, just minutes later, without the accountholders’ knowledge, the Defendants, and/or individuals acting in concert with them, placed scores of unauthorized buy orders at above-market prices using the compromised accounts. After these unauthorized buy orders were placed, the Defendants sold the positions held in their own account at the artificially inflated prices. In other instances, the Defendants profited by covering short positions previously established in their account while placing unauthorized sell orders through the compromised accounts at substantially lower prices. This illicit account activity artificially affected the share price and trading volume for each of the thinly-traded issuers and enabled the Defendants to sell their holdings at a substantial profit, realizing at least $255,532 in ill-gotten gains.

The Commission’s complaint further alleges that the Defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeks permanent injunctions against future violations by the Defendants and disgorgement of all ill-gotten gains, including prejudgment interest and civil penalties.

The SEC’s Office of Investor Education and Assistance has previously issued an investor alert, available on the SEC’s website, which provides tips for avoiding becoming a victim of an online intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm.

The Commission acknowledges the assistance of FINRA and the NYSE in this matter.

See Also: SEC Complaint or scroll down to see it embedded.

BroCo immediately replied to that with the following statement on their site as well as changing the homepage to a picture of presumably Valery Maltsev and his personal statement:

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Explanation of the situation with Genesis company, the USA

On March, 16, some mass media published the information that the US district Court of southern district of New York froze assets of BroCo Investments Inc. hold in Genesis Securities company. The company was accused in illegal accessing investors’ accounts for further market manipulations.

Reasons and claims of the USA Securities and Exchange Commission do not seem founded for the company.

“As representative of Broco states, to provide our Clients with an access to the US stock market, we signed a sub-brokerage agreement with Genesis Securities LLC. The procedure is that for every Client we open subaccount in Genesis Securities LLC and submit the package of documents for Client. Client account is opened upon examination and they get access to Laser Trade platform. Transactions on subaccounts are performed by Clients not by the Company. We provide this service starting from 2008 fall and since that time we have not received any complaint from Clients regarding unauthorized accessing, hacking, damage or other problems on their accounts. What is important is that our contractor – Genesis Securities LLC — had never made any claim regarding trading style of our Clients”

— comments official representative of the company.

“Among traders using Laser Trade platform there are many professional traders who demonstrate sustainable results and achieve high yield. It is possible that their successes attracted attention of SEC. Please note that this situation will not affect your trading on other platforms in Broco. Currently we have only Laser Trade account frozen. Personal accounts of company’s president are not frozen as well and he can continue operations on stock market. Now our lawyers examine the situation and we are waiting for representatives of Genesis Securities LLC. Thus very soon we will have full information about reasons of complaint and hope that the situation will be resolved. ”

And this is what appeared on company’s website as another personal statement:

SEC’s full complaint:

SEC BROCO

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