Today, we announce significant developments in a securities fraud investigation involving the large-scale theft of client funds by a global brokerage and trading firm.
This afternoon, ConvergEx Global Markets Limited, or CGM – a brokerage subsidiary of ConvergEx Group located in Bermuda – pleaded guilty to conspiring to commit securities and wire fraud and to substantive wire fraud charges. In addition, two traders, Jonathan Daspin – who was the head of trading at CGM – and Thomas Lekargeren – who was a sales trader of a ConvergEx affiliate – also pleaded guilty to conspiracy to commit wire and securities fraud. The Justice Department has also charged CGM Limited’s parent company, ConvergEx Group, for its role in the same criminal conduct. ConvergEx Group has entered into a two-year deferred prosecution agreement to resolve those charges. Together, ConvergEx Group and CGM are paying criminal penalties and restitution of over $43 million.
As described in the guilty plea agreements and charging documents, ConvergEx – which was a broker for some of the most sophisticated institutional investors in the world – engaged in a concerted and coordinated effort to fleece its clients by charging them millions of dollars in unwarranted fees – which ConvergEx called “trading profits,” or “spread” – and then concealing those charges from its clients through a pattern of deception. Although the theft of money from ConvergEx’s clients was large in scale, the fraud scheme was committed in the most basic of ways: ConvergEx and its traders, plain and simple, lied to their clients to hide that they were stealing their money.
As described in the court documents, ConvergEx’s lies were repeated, deliberate, and came in many different forms. As one example, ConvergEx employees simply doctored up false transaction reports – which included completely fabricated details about execution orders, including the number of shares involved in a trade, the time a trade was executed, and the price at which shares were bought or sold – to hide that they were charging a “spread” to their clients. In one instance, Jonathan Daspin (the head trader at CGM) instructed a sales trader while creating a false report to “Please put all Prints in one spreadsheet in the least Friendly Format….If possible take this out of spreadsheet Format and make a PDF – Or put this in picture file or something tricky to manipulate.” At other times, when clients questioned the payments, ConvergEx employees intentionally provided misleading explanations to conceal the “spread” they were charging. And, to avoid having their scheme uncovered, ConvergEx employees deliberately took smaller spreads on their more sophisticated, price-sensitive clients; and they took larger spreads when they were less likely to be discovered. In addition, at times, they used multiple local brokers during the course of a trade so that a client would not be able to track the execution of its order through publicly available resources.
The scheme itself, and the lies told by ConvergEx to its clients to conceal the scheme, were astonishingly brazen. As just one example, when certain clients instructed ConvergEx to provide them their transactional data in real time so that they could more closely track the trades that ConvergEx was executing for them, Jonathan Daspin, along with others, quickly realized that such a real-time data feed would make it far more difficult for them to steal client funds and conceal the theft from their clients. So, their response was simply to “turn off” the real-time data feed for certain portions of their clients’ orders – during which periods they took the spread on their clients’ trades – and then blamed the purported failure of the real-time data feed on “IT issues.”
This coordinated bilking of clients by a broker-dealer – accomplished through intentional and repeated misrepresentations – caused significant harm. This kind of scheme not only inflicts real financial losses on investors, but also undermines investors’ confidence in the integrity and reliability of the financial markets. As today’s announcement demonstrates, we will not tolerate this type of criminal conduct and we will hold both institutions and individuals to account.
We would like to thank the FBI and Postal Inspection Service, which tirelessly investigated the case. We are also grateful to the SEC for referring the matter to the Criminal Division and for its significant assistance in the investigation. We also acknowledge the substantial cooperation that ConvergEx provided during the investigation. Finally, I would like to thank the dedicated prosecutors at the Criminal Division’s Fraud Section for their excellent work on this important, and ongoing, investigation.