ITG and its affiliate AlterNet Securities will pay $20.3 million to settle charges that they operated a secret trading desk, the U.S. Securities and Exchange commission announced today.
The troubled broker-dealer — which saw its CEO step down on Monday and an interim CEO take his place — is also charged with misusing the confidential trading information of its dark pool subscribers.
The regulator “found that despite telling the public that it was an agency-only broker whose interests dont conflict with its customers, ITG operated an undisclosed proprietary trading desk known as Project Omega for more than a year.”
[What did the SEC find in Project Omega?Tradershas the details.]
An SEC press statement added, “[w]hile ITG claimed to protect the confidentiality of its dark pool subscribers trading information, during an eight-month period Project Omega accessed live feeds of order and execution information of its subscribers and used it to implement high-frequency algorithmic trading strategies, including one in which it traded against subscribers in ITGs dark pool called POSIT.”
Unlike previous SEC settlements where the accused pays a fine and does not admit any guilt, ITG admitted wrongdoing. Further, it will “pay disgorgement of $2,081,034 (the total proprietary revenues generated by Project Omega) plus prejudgment interest of $256,532 and a penalty of $18 million that is the SECs largest to date against an alternative trading system,” according to the SEC.
ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit, said Andrew J. Ceresney, director of the SECs Division of Enforcement.In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.
On Monday, ITG CEO Bob Grasser stepped down to be replaced by E*trade veteran Jarrett Lilien in the wake of the scandal and news of the SEC’s proposed fine. ITG General Counsel Mats Goebelsalso resigned, according to news reports.
With todays settlement, we have put this regrettable legacy matter behind us and are working to rebuild our clients trust in ITG, said Maureen OHara, chair of ITGs Board of Directors. We have moved to position the company for future success. On behalf of the Board, I want to thank our employees for their dedication in helping to bring this matter to a conclusion, she added.
Interim Chief Executive Officer Lilien said: ITG has a distinguished heritage of integrity that has certainly been tested. By reaching this final settlement with the SEC, we now have the opportunity and the responsibility to restore the bond of trust with our clients and make it stronger than ever before. My colleagues and I all share the same vision and the same mission – which is to focus relentlessly on our clients and make it clear that we are their ally in the market. We look forward to restoring the confidence of our customers and our shareholders through the actions we take in the coming weeks and months.
ITGs status on Wall Street adds urgency to this recent news. As one of the largest agency only asset managers they were held to a higher standard, Larry Tabb, chief executive of Tabb Group, told the Financial Times.
At press time, ITG’s stock was down 4.97 percent to 16.62.
