Stock-loan Finder Indicted for Kickbacks and Fraud Involving Stock-loan Desks of Wall Street Brokerage Firms
Charges Include Conspiracy to Commit Securities Fraud and Wire Fraud
An indictment was unsealed this morning in federal court in Brooklyn alleging securities fraud conspiracy and related charges against Ronald Garcia, a purported stock-loan finder who did business as Independent Investor Services, Inc. (“Independent Investor”)1 . The defendant’s initial appearance and arraignment is scheduled for this afternoon before United States Magistrate Judge Marilyn D. Go, at the U.S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The case has been assigned to United States District Judge John Gleeson.
The indictment was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, and Joseph M. Demarest, Jr., Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office.
The charges arise out of an ongoing industry-wide investigation into allegations of bribery and kickbacks in the securities-lending industry, also called the stock-loan industry. Securities firms often borrow and loan securities among themselves for a number of reasons, including facilitating short-sale transactions. Stock-loan finders can assist these firms by locating inventories of a given security and matching borrowers and lenders in stock-loan transactions. The investigation disclosed that stock-loan traders at several brokerage firms funneled millions of dollars in fraudulent finder’s fees to their co-conspirators, often where no finder’s services had been rendered, in exchange for cash bribes and, in some instances, payments to the traders’ relatives. To date, 30 individuals have been convicted in this district of federal kickback and bribery schemes in the stock-loan industry, including former securities-lending traders at A.G. Edwards and Sons, Inc.; Janney Montgomery Scott LLC; JP Morgan Chase; Kellner Dileo & Company, Inc.; Oppenheimer & Co., Inc.; Morgan Stanley; National Investors Services, also known as TD Waterhouse; Nomura Securities International, Inc.; Pax Clearing Corporation; PFPC Worldwide Inc.; Schonfeld Securities, LLC; and Van der Moolen Specialists USA, LLC.
The six-count indictment announced today charges Garcia with conspiracy to commit securities and wire fraud, securities fraud, and wire fraud. As alleged in the indictment, Independent Investor received finder’s fees in connection with stock-loan transactions between Schonfeld Securities, LLC, and Van der Moolen Specialists USA, LLC, when neither Garcia nor Independent Investor had performed any legitimate finder services. In exchange for these fraudulently-obtained finder’s fees, Garcia paid cash kickbacks to a trader at Van der Moolen Specialists USA, LLC , who in turn paid a portion of the kickbacks to a trader at Schonfeld Securities, LLC.
The U.S. Securities and Exchange Commission previously filed a related civil suit against Garcia in federal court in the Eastern District of New York.
“The defendant allegedly entered into a fraudulent arrangement and paid kickbacks to corrupt traders at brokerage firms to buy their business,” stated United States Attorney Campbell. “Such conduct undermines the public’s confidence in the nation’s securities markets and will be vigorously investigated and prosecuted.” Mr. Campbell thanked the Securities and Exchange Commission for its assistance.
FBI Assistant Director-in-Charge Demarest stated, “Legitimate stock loan finder’s fees
are compensation for real work in the securities industry, but this defendant’s alleged scheme was the white collar equivalent of a no-show job. He conspired to get paid for work he didn’t do, and paid kickbacks to those who enabled him. The FBI will continue to police fraud schemes that amount to theft, whether from building sites or brokerage firms.”
If convicted, the maximum term of imprisonment for securities fraud or conspiracy to commit securities fraud is 25 years. The maximum term of imprisonment for conviction of wire fraud or conspiracy to commit wire fraud is 20 years.
The government’s case is being prosecuted by Assistant United States Attorneys Winston M. Paes and Laura D. Mantell.
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