The U.S. Securities and Exchange Commission accused five New Jersey-based traders and two brokerages of bilking investors with illegal high-speed trading tactics known as “layering” or “spoofing.”
Joseph Dondero, a co-owner of Visionary Trading LLC, tricked investors into buying and selling specific stocks at prices he manipulated by peppering those shares with orders he immediately canceled, the SEC said in an administrative order today. Dondero, Visionary Trading, Lightspeed Trading LLC and four other individuals will pay about $3 million to settle the matter.
The settlement comes as regulators try to show they have a grasp on whether high-frequency and computer-driven trading is harming investors after a book on the practices was published this week, fanning a debate that has been part of regulatory discussions for years.
“The fair and efficient functioning of the markets requires that prices of securities reflect genuine supply and demand,” Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said in a statement. “Traders who pervert these natural forces by engaging in layering or some other form of manipulative trading invite close scrutiny from the SEC.”
Dondero’s rapid-fire orders, which occurred from 2008 to 2011, created fluctuations in the national best bid or offer of a stock, increased order book depth and sent false signals to investors who misinterpreted the “layering” as true demand for the stock, the SEC said.
Dondero settled the claims for $1.9 million and agreed to be barred from the securities industry. Three other participants paid more than $500,000 to settle the accusations and agreed to two-year suspensions. A fifth individual will pay $10,000 to settle the matter.
John Vazquez, an attorney for Dondero, didn’t immediately return a phone call seeking comment.
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