Washington, DC - The former chief executive officer (CEO) and a former trader of ConvergEx Global Markets Limited (CGM Limited) - a former broker-dealer registered in Bermuda - were indicted late yesterday in federal court in the District of New Jersey for allegedly concealing additional fees, which they referred to as “trading profits,” fraudulently charged to clients in connection with orders to buy and sell securities.
Assistant Attorney General Leslie R. Caldwell for the Justice Department’s Criminal Division, Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office, and Inspector in Charge Philip R. Bartlett of the U.S. Postal Inspection Service (USPIS) made the announcement.
“The former CEO and a senior vice president of ConvergEx Global Markets Limited have been charged in connection with a scheme to bilk millions of dollars from clients, then conceal the fraud from their client victims,” said Assistant Attorney General Caldwell. “The Justice Department’s Criminal Division will bring to justice those who fleece investors in the financial markets, particularly high-level executives and sophisticated traders.”
“Securities fraud schemes undermine investor confidence and damage the integrity of our global trading market,” said Assistant Director in Charge Parlave. “Today’s indictment underscores the FBI’s ability to work with our partners to investigate complex international financial crimes and sends a clear message to the brokerage community that providing anything less than complete transparency will not go unnoticed.”
“This indictment demonstrates Postal Inspectors’ commitment to pursuing those in the financial services industry who have chosen to defraud its customers,” stated Inspector in Charge Bartlett. “We will continue to investigate the criminals who use the mail to further their criminal activity.”
Anthony Blumberg, 49, of New Jersey, and Craig Marshall, 47, of Bermuda, were, respectively, the CEO and a senior vice president involved in trading at CGM Limited. Blumberg was also an executive managing director of ConvergEx Group LLC, the parent company of CGM Limited. A federal grand jury returned an indictment charging both Blumberg and Marshall with securities fraud, wire fraud, and conspiracy to commit securities and wire fraud. In a separate action, the Securities and Exchange Commission (SEC) announced civil charges against Blumberg.
According to the allegations in the indictment, certain ConvergEx Group broker-dealers regularly routed securities orders to CGM Limited in Bermuda so that it could take a mark-up (an additional amount paid for the purchase of a security) or mark-down (a reduction of the amount received for the sale of a security) when executing the orders. Employees throughout ConvergEx Group and its subsidiaries referred to such mark-ups and mark-downs as “spread,” “trading profits” or “TP.” T o hide the fact that spread had been taken on trades, from 2007 to 2011, Blumberg, Marshall and others sent false transaction reports to clients with fabricated details regarding the transactions, or “fills,” executed during the course of a day to complete a client’s orders. These reports falsified details including the number of shares involved in a fill, the time at which the fill was executed and the price at which shares were either purchased or sold.
According to previously-filed court documents, CGM Limited traders, including Marshall, created these false reports using exchange data from transactions entered into by others on the same trade date as the trades that had been executed by CGM Limited on behalf of its clients. Clients who received these reports had approximately $5.2 million in spread taken on their trades.
According to the indictment, Blumberg, Marshall and others agreed to violate a client’s instructions to provide real-time transactional data through an immediate data feed with details of trades that CGM Limited executed for the client. According to previously-filed court documents, instead of providing such real-time data, CGM Limited traders turned off the real-time data feed for certain portions of the client’s orders and took spread while the real-time data feed was turned off. On several occasions, when the client asked why the feed was not receiving real-time data, the client was told that various “IT” issues were to blame.
On Dec. 18, 2013, Jonathan Daspin, the head trader at CGM Limited, Thomas Lekargeren, a sales trader at a different ConvergEx subsidiary, and CGM Limited each pleaded guilty to conspiracy to commit securities and wire fraud before U.S. District Judge Jose L. Linares in the District of New Jersey. On the same day, ConvergEx Group entered into a deferred prosecution agreement. Collectively, the two ConvergEx entities paid $43.8 million in criminal penalties and restitution.
The charges in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
The case is being investigated by the FBI’s Washington Field Office and the Washington, D.C. and New York offices of the U.S. Postal Inspection Service. The case is being prosecuted by Trial Attorneys Justin Goodyear, Jason Linder and Patrick Pericak of the Criminal Division’s Fraud Section and by Assistant U.S. Attorney Leslie Schwartz for the District of New Jersey. Fraud Section Assistant Chief Robert Zink and former Trial Attorney Charles Reed also assisted with the investigation. The department appreciates the substantial assistance of the SEC.