01/13/2015 01:15 PM EST
The Securities and Exchange Commission today charged a man living in Ontario, Canada, with orchestrating a lucrative market manipulation scheme that relied on “layering” in which a trader places orders solely to trick others into buying or selling U.S. publicly traded stocks at artificially inflated or depressed prices.
In a complaint filed in federal court in Newark, N.J., the SEC alleges that since at least January 2013, Aleksandr Milrud recruited online traders chiefly based in China and Korea and shared in the profits the traders made from manipulative trading in U.S. securities markets. Milrud provided the traders with access to trading accounts and technology and instructed them on how to avoid regulatory scrutiny while engaging in layering strategies. The SEC’s complaint also alleges that to distance himself from certain transactions, Milrud wired funds to an offshore bank account and had the money delivered to him in a suitcase filled with cash.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Milrud.
“Layering is a deceptive practice to trick others into buying or selling a stock at artificially inflated or depressed prices,” said Daniel M. Hawke, Chief of the SEC Enforcement Division’s Market Abuse Unit. “No matter where they are located, we continue to identify and investigate those whose trading practices threaten to undermine the fair operation of the U.S. securities markets.”
According to the SEC’s complaint, Milrud inserted numerous middlemen into his scheme in an effort to evade detection. He had his traders use multiple computers, Internet protocol (IP) addresses, and user names. Traders were provided at least two accounts, one to do what Milrud called “the dirty work” of layering and one to execute what he termed “clean” trades at prices affected by the dirty work of the first account. Milrud instructed the traders to conduct layering on a wide variety of stocks while limiting the number of trades and the price changes, hoping to minimize attention to the manipulative trading.
“Milrud’s elaborate efforts to disguise this manipulative trading scheme were ultimately unsuccessful,” said Joseph G. Sansone, Co-Deputy Chief of the SEC’s Market Abuse Unit. “His scheme was uncovered and he must now face the consequences of his actions.”
The SEC’s complaint charges Milrud with violating and aiding and abetting violations of anti-fraud provisions of federal securities laws and the SEC’s antifraud rule, and with liability for the conduct of the traders under his management. The SEC is seeking a final judgment ordering Milrud to return his allegedly ill-gotten gains with interest plus penalties and permanently barring him from future violations.
The SEC’s investigation, which is continuing, is being conducted by Simona Suh, Barry P. O’Connell, A. Kristina Littman, and Lynn H. O’Connor of the Market Abuse Unit and by Elzbieta Wraga of the New York Regional Office. The case is being supervised by Mr. Hawke, Mr. Sansone, and Steven D. Buchholz of the Market Abuse Unit. The SEC’s litigation will be led by Nancy A. Brown, Ms. Suh, and Mr. O’Connell. The SEC appreciates the assistance of the Newark Field Office of the Federal Bureau of Investigation, U.S. Attorney’s Office for the District of New Jersey, and Financial Industry Regulatory Authority.