A high frequency trading brokerage and its CEO have been charged with what is called ‘layering’ by the Financial Industry Regulatory Authority (FINRA) and major stock exchanges.
Layering describes a practice in which traders place multiple orders in numerous locations for an asset, to create the appearance of demand, but then the orders are cancelled and the trades conducted in the opposite direction.
In the movie, a Good year, starring Russel Crowe, the main character tried a similar tactic, and fearing for his job, fled to France where he inherited a vineyard.
The practice is outlawed by the Dodd-Frank bank reform act in the commodities market.
Charges were brought against Samuel Lek, and the brokerage he founded, Lek Securities.Accusations were for aiding and abetting manipulative trading by one of its customers.
The charge also related to the accusation that insufficient management controls were in place to guard against such activities.
LeK and its CEO are accused of having allowed 1.7 million layering related transactions over the four or so years between the autumn of 2010, and June 2015 relating to an account in the name of Avalon.
Financial Industry Regulatory Authority said: “The Avalon account brought insufficient business to the firm to make it profitable, notwithstanding numerous red flags and ongoing investigations into the activity by Finra, the Securities and Exchange Commission, and various exchanges.”
Lek is accused of providing traders with office space, computers services, trading software and support from two people who helped manage paper work.
Lek Securities Corporation was founded in 1990 by Samuel Lek as a proprietary trading firm, making option markets on the American Stock Exchange.On its web site, it says that “our policy prohibits proprietary trading and market making… It adds “Because of the large volume executed by our clients on many different exchanges, it is virtually impossible for competitors to decipher the identity of our clients or to detect trading patterns.”