The Securities and Exchange Commission today barred two brokers at a now-defunct Connecticut brokerage for giving customer order information to certain favored customers, helping those customers get better prices while generating extra commissions for their firm. The SEC also ordered the brokers to pay financial penalties.
The SEC’s Enforcement Division alleges that the former co-head of equities trading at Rochdale Securities, Hal Tunick, and his subordinate, Patrick Burke, defrauded customers by using their order information to advise two longtime customers to trade ahead of these orders. Once those favored customers purchased or sold short the shares, Tunick and Burke arranged for them to unload their positions to the customers who had placed the original orders. The favored customers profited from these trades while the defrauded customers generally received worse prices than they would have if their orders had been routed directly to the market.
As a result of this scheme, which Tunick and Burke perpetrated from at least 2010 to 2012, Rochdale essentially earned double trading commissions: one for executing trades by the favored customer of Tunick or Burke and another for executing the original Rochdale customer order.
“These brokers repeatedly shirked their obligation to seek best execution for their customers so they could get extra commissions for their firm and better prices for favored customers,” said Joseph G. Sansone, co-chief of the Enforcement Division’s Market Abuse Unit. “They are now paying the price for putting the interests of favored customers and themselves ahead of the interests of their other customers.”
According to the SEC’s orders instituting settled administrative proceedings, Tunick and Burke were aware of their obligations to execute Rochdale customer trades consistent with Rochdale’s duty of best execution, which requires a broker to seek to obtain the most favorable terms reasonably available under the circumstances for a customer’s transaction. Tunick and Burke failed to seek best execution on those orders by causing orders to be filled at prices that were worse than those available in the market.
The investigation of the brokers’ illegal scheme was prompted by information the SEC Division of Enforcement developed in the course of a separate inquiry.
To settle the charges, Tunick, 56, of Chappaqua, New York agreed to pay a civil penalty of $125,000 and to be barred from the securities industry. Burke, 49, of Wilton Connecticut agreed to pay a civil penalty of $50,000, disgorgement of commissions plus prejudgment interest, and to be barred from the securities industry with a right to reapply after five years. Both Tunick and Burke consented to the SEC’s orders without admitting or denying the findings.
The SEC’s investigation was conducted by the Enforcement Division’s Market Abuse Unit. Eric A. Forni, David H. London, and Michele T. Perillo of the Boston Regional Office conducted the investigation, with assistance from the unit’s specialists John Marino and Mandy Sturmfelz and from the Commission’s Division of Trading and Markets and Division of Economic and Risk Analysis. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.