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26Jan12
SEC charges trader with hijacking accounts
Securities regulators charged a Latvian trader with reaping more than $850,000 in illegal profits by hacking into online brokerage accounts and manipulating more than 100 securities.
In a complaint filed in federal court in San Francisco on Thursday, the Securities and Exchange Commission said Igors Nagaicevs broke into accounts at large U.S. brokerages and drove up stock prices by making unauthorized purchases and sales.
The SEC complaint gave Nagaicevs' address in Jurmala, Latvia, and said he was 34 years old but gave no further information on his current whereabouts. The SEC wants him to pay an unspecified amount in disgorgement and penalties.
The SEC also took administrative enforcement action on Thursday against four electronic trading firms and eight executives, saying they all enabled Nagaicevs's scheme by giving him "anonymous and unfiltered access" to the U.S. market.
The SEC said the trading firms also failed to properly register as brokers.
Two individuals and one firm have agreed to settle the matter, the agency said.
As part of its broader review of market structure issues, the SEC has flagged a practice known as "sponsored access" - in which brokerages with approval to trade on exchanges rent their access to traders - as a problem area.
Last year, new SEC rules took effect that target sponsored access by requiring brokerages to implement risk controls and increase their supervision over unlicensed high-speed traders who gain unfettered access to the markets.
The rules also effectively banned what is known as "naked access" in which brokers do not screen the orders en route to the markets.
The alleged conduct in the complaint occurred before those rules took effect.
The SEC's complaint said trading firms Alchemy Ventures Inc, KM Capital Management, Zanshin Enterprises and Mercury Capital all received "sponsored market access" from brokerages registered in the United States and then "passed the sponsored access on to the Latvian trader" who used it to manipulate the markets.
"These firms provided unfettered access to trade in the U.S. securities markets on an essentially anonymous basis," said Daniel Hawke, head of the SEC's Market Abuse Unit, in a statement.
"By failing to register as brokers, the firms and principals in this case exposed U.S. markets to real harm by evading crucial safeguards of the federal securities laws. We will not allow firms like these to fly under the radar and become safe havens for market abuse."
Mercury Capital and its president Lisa Hyatt agreed to settle the matter, as did Richard Rizzo, an associate of Zanshin Enterprises, the SEC said. Hyatt and Rizzo will each pay a $35,000 penalty.
Michael Bachner, an attorney for Rizzo, said the SEC has acknowledged in the settlement that his client had no knowledge of the illegal activities and that he never "intentionally furthered them."
Frank Razzano, an attorney for Mercury Capital and Hyatt, said his clients are happy to put this matter behind them.
Attorneys for the other firms and executives charged could not be immediately reached for comment, and Nagaicevs has no known defense counsel.
[Source: By Sarah N. Lynch, Reuters, Washington, 26Jun12]
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