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HOLD BROTHERS FINED MORE THAN $5.9 MILLION FOR MANIPULATIVE TRADING, ANTI-MONEY LAUNDERING, AND OTHER VIOLATIONS

The Financial Industry Regulatory Authority (FINRA), along with the NYSE, NASDAQ, and BATS Exchange, announced that they have fined and censured Hold Brothers On-Line Investment Services $3.4 million for manipulative trading activities, anti-money laundering (AML), and other violations. In addition, the Securities and Exchange Commission (SEC) announced a settlement with Hold Brothers, fining the firm greater than $2.5 million. In resolving these matters, FINRA and the exchanges took the SEC's action into consideration, which included bars for three Hold Brothers senior managers.

Headquartered in New York, Hold Brothers is a self-clearing broker that provides direct market access to customers and proprietary traders by operating primarily as a day trading firm. Between January 2009 and December 2011, Hold Brothers' biggest accounts, Demonstrate LLC and Trade Alpha, were day trading firms wholly-owned and funded by Hold Brothers' principals. Demonstrate and Alpha engaged traders in numerous countries, mainly in China, to trade its capital. FINRA discovered that Demonstrate and Trade Alpha were under the control of Hold Brothers - hundreds of instances were uncovered where foreign traders used spoofing and layering activities to induce market participants to provide the traders with favorable execution pricing that would not have been available but for such violations.

Spoofing is a type of market manipulation, which involves placing non-bona fide orders, usually inside the National Best Bid or Offer (NBBO), with the intent to cause another market participant to join or improve the NBBO. The non-bona fide order is then canceled, and an order on the opposite side of the market is entered. Layering consists of the placement of multiple, non-bona fide limit orders on one side of the market at various price levels at or away from the NBBO to create the illusion of a change in the levels of supply and demand - this action artificially affects the movement of the price. An order is then executed on the opposite side of the market at the illusory price, and the non-bona fide orders are canceled.

It was also found that Hold Brothers failed to establish and maintain a supervisory system and written procedures that were reasonably designed to supervise trading activities. In addition, Hold Brothers' AML policies were insufficient and failed to detect suspicious transactions. For example, between 2009 and 2011, the firm averaged 400,000 trades per day, 90 of which were placed through the Demonstrate account. Despite the high volume of trading Hold Brothers' AML procedures only provided for manual monitoring to detect suspicious trading in the accounts. Furthermore, there were also numerous instances when Hold Brothers' compliance department determined that Demonstrate and Trade Alpha had engaged in suspicious or manipulative trading. No suspicious activities reports were filled out, and the firm's compliance officer was never informed of the activity.

Have you suffered losses resulting from illegal activity at Hold Brothers? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.