Lek Securities Corporation – a registered broker-dealer – agreed to pay a fine of US $900,000 and Samuel Lek, the firm’s former chief executive officer, agreed to be permanently barred from the securities industry in all capacities to resolve charges brought by the Financial Industry Regulatory Authority and multiple securities exchanges that they breached supervisory obligations and the Securities and Exchange Commission’s market access rule.

Approximately two months ago, Lek Securities and Mr. Lek settled charges brought by the SEC that they facilitated manipulation by a client, Avalon FA Ltd, a non-US entity, and two of its control persons. The SEC claimed that Avalon engaged in spoofing trading involving stocks “in hundreds of thousands of instances” between approximately December 2010 through at least September 2016 and cross-market manipulation from at least August 2012 through at least December 2015.

The SEC claimed that Lek Securities and Mr. Lek helped Avalon engage in its purportedly illicit conduct by providing the non-US firm access to US markets, relaxing Lek Securities’ layering controls after Avalon objected, and improving Lek Securities’ technology to help Avalon’s trading. To resolve the SEC’s complaint, Lek Securities agreed to pay a fine of US $1 million and US $525,892 in disgorgement and prejudgment interest and Mr. Lek consented to remit a US $420,000 fine. Lek Securities also agreed not to provide intraday-trading access to foreign customers except under limited prescribed circumstances, and to retain a compliance monitor for three years.

FINRA’s and the exchanges’ allegations against Mr. Lek and Lek Securities echoed the SEC’s charges. FINRA and the exchanges claimed that notwithstanding their and the SEC’s longstanding investigation, the respondents permitted Avalon’s problematic trading to go on for a substantial period of time.

Under the SEC’s market access rule, broker-dealers, like Lek Securities, are obligated to reasonably control the financial and regulatory risk of access to exchanges or other markets by their customers who are provided market access.

(Click here for background on the SEC’s market access rule. Click here for background on the SEC’s enforcement action and settlement against Mr. Lek and Lek Securities in the article “Broker-Dealer and CEO Agree to Almost US $2 Million Penalty With SEC for Facilitating Alleged Manipulative Trading by Non-US-Based Trading Firm” in the October 13, 2019 edition of Bridging the Week.)