On December 18, 2009, the SEC charged a U.S. subsidiary of the world’s largest inter-dealer broker, U.K.-based ICAP plc, with fraud for engaging in deceptive activity and making material misrepresentations to customers concerning its trading activities. According to the SEC, ICAP’s U.S. Treasuries (“UST”) brokers displayed thousands of fictitious flash trades to ICAP’s customers between December 2004 and December 2005. The SEC also found that ICAP represented to its off-the-run UST customers that its electronic trading system would follow certain workup protocols in handling customer orders. However, ICAP’s brokers on the UST desks used manual tickets to bypass such protocols and close out of thousands of positions in their ICAP house accounts, thereby rendering ICAP’s representations concerning the workup protocols false and misleading. In some instances, ICAP’s customers’ orders received different treatment than the customers expected pursuant to the workup protocols.
The SEC also found that ICAP held itself out as a firm that did not engage in proprietary trading. The SEC alleged that during the relevant period, however, two former ICAP brokers on the voice-brokered collateralized pass-through mortgage-backed securities (“MBS”) desk routinely engaged in profit-seeking proprietary trading that rendered ICAP’s representations regarding proprietary trading false and misleading. The SEC’s order found that ICAP failed to make and keep certain required books and records on the UST desks and the MBS desk. ICAP agreed to settle the SEC’s charges by, among other things, paying $25 million in disgorgement and penalties. The SEC also charged five ICAP brokers for aiding and abetting the firm’s fraudulent conduct and two senior executives for failing reasonably to supervise the brokers. The individuals have agreed to pay penalties to settle the SEC’s charges.