According to an announcement made by the U.S. Securities and Exchange Commission (SEC), the regulatory body has settled with the former CEO of ConvergeEx, Craig Lax, for the sum of $783,000. The former executive has admitted wrongdoing and decided to settle the case involving employees under his control misleading customers.
Subsidiaries of the U.S. brokerage have already been charged by the SEC and paid $107 million while admitting wrongdoing when settling. The regulatory body also charged two ex-employees in that same enforcement action, filing a separate case against a different former ConvergEx subsidiary CEO. That action is currently pending in federal court.
According to the SEC’s complaint against Craig Lax, clients of ConvergEx have been paying substantially higher sums over the stated commission rates. This has happened mainly due to the subsidiaries of the broker conspiring to carry out the scheme.
The practice used by the perpetrators was to conceal routing trading orders to an offshore affiliate in order to take hidden mark-ups and mark-downs commonly referred to as “trading profits” or “TP.”
The company’s CEO, Craig Lax, authorized employees to temporarily suspend taking TP when a customer asked for a certain report that could reveal the hidden charges.
He also authorized the use of a proprietary trading algorithm designed to conceal the charges from a customer. To avoid potential questions from customers about why one particular trader was located offshore, Lax requested new business cards falsely indicating the trader was located in New York.
As part of the settlement, Lax has been barred from the securities industry for at least five years.
The Associate Director in the SEC’s Division of Enforcement, Stephen L. Cohen, said, “Senior executives cannot permit deceptive practices by their subordinates. Lax not only condoned such conduct, but he specifically authorized practices that kept customers in the dark.”
