Order Execution and Clearing Firm Charged with Aiding and Abetting Manipulative Trading

FINRA and ten exchanges charged an independent order-execution and clearing firm and its CEO with aiding and abetting manipulative trading by one of the firm's customers. The complaint by FINRA alleges that Lek Securities Corporation ("LSC") and Chief Executive Officer Samuel F. Lek supported extensive manipulative trading in a customer account known as "Avalon," and that this trading affected both the equities and options markets. The firm was also charged with aiding and abetting the operation of Avalon's unregistered broker-dealer.

The alleged manipulative trading involved "layering," which is when a trader places orders that are not meant to be executed with the intention of creating the false appearance of supply or demand in a security. The trader's objective is for this false appearance to push the price of the relevant security in a direction that is favorable to the trader, which allows the trader to obtain better prices on bona fide orders than otherwise would be available. According to the complaint, FINRA detected more than 1.7 million instances of layering at LSC from November 2010 through June 2015, with Avalon being responsible for over 600,000 of the instances. FINRA further alleged that Avalon was operating as an unregistered broker-dealer by entering into sub-account agreements with foreign retail customers and providing those customers with U.S. market access through Avalon's account at LSC – all while charging the retail customers transaction-based commissions.

FINRA's complaint alleges that LSC knew or was extremely reckless in not knowing that Avalon was engaged in layering and operating as an unregistered broker-dealer while the firm provided Avalon with substantial assistance regarding these activities. The firm also was charged with violating:

• Exchange Act Rule 15c3-5 (the "Market Access" rule);

• "know-your-customer" rules; and

• rules regarding "the preservation and supervision of electronic communications, the maintenance of [Central Registration Depository] information, supervision of employee outside business activities, payments to individuals not associated with a broker-dealer, and failing to fully and timely comply with information requests from FINRA in connection with the investigation."

Complaints were also filed by the New York Stock Exchange, NYSE Arca, NYSE MKT, Bats BZX, Bats BYX, Bats EDGA, Bats EDGX, Nasdaq, Nasdaq BX and the International Securities Exchange.