By Sarah N. Lynch
WASHINGTON, Dec 18 (Reuters) - Brokerage company ConvergEx
Group LLC will pay more than $150 million to resolve criminal
and civil charges that some of its subsidiaries and two former
employees secretly overcharged clients by millions of dollars
and lied about the extra fees, U.S. authorities said Wednesday.
As part of an agreement with the U.S. Justice Department, a
now-defunct ConvergEx unit that was registered in Bermuda and
the two former company employees pleaded guilty to criminal
The Justice Department filed charges against ConvergEx
itself but agreed to defer and drop them if the
company abides by the terms of the deal, which includes paying
$43.8 million in penalties and restitution.
In addition, three of ConvergEx's subsidiaries, including
the shuttered Bermuda unit, will pay more than $107 million to
settle parallel civil charges filed on Wednesday by the U.S.
Securities and Exchange Commission.
In the SEC's case, those entities also admitted to violating
securities laws and agreed to the set of facts laid out in the
This settlement marks the third time that the SEC has
extracted admissions of wrongdoing from defendants, as part of a
policy instituted by SEC Chair Mary Jo White earlier this year.
ConvergEx "engaged in a concerted and coordinated effort to
fleece its clients by charging them millions of dollars in
unwarranted fees ... and then concealing those charges from its
clients through a pattern of deception," Acting Assistant
Attorney General Mythili Raman said on Wednesday.
The company is a large brokerage that provides trade
execution services to major institutional clients. Its two
largest shareholders are private equity firm GTCR and Bank of
New York Mellon.
ConvergEx had planned to go public in a $400 million initial
public offering but withdrew the IPO in June. It recently
hired Nasdaq OMX's second in command, Eric Noll, to be
its president and chief executive.
According to the SEC's complaint, the brokerage often
charged large institutional clients more than double what they
thought they were paying.
ConvergEx was able to charge the extra fees by routing its
customers' orders to the offshore unit in Bermuda.
This allowed ConvergEx to charge "undisclosed mark-ups and
mark-downs" in addition to the commissions the customers
expected to pay, the SEC said.
In a statement, ConvergEx said that the overwhelming
majority of its equity execution business clients and customer
orders were not affected by the scheme.
"The employees who engaged in this misconduct are no longer
at the company, the Bermuda trading desk ... was shut down by
ConvergEx, and the activity associated with these investigations
was discontinued two years ago," the company said.
The Justice Department said that Jonathan Daspin, the former
head trader of ConvergEx's broker-dealer that was registered in
Bermuda, and Thomas Lekargeren, a sales trader at another one of
the firm's subsidiaries, each pleaded guilty to conspiring to
commit securities and wire fraud.
Both were accused of playing various roles that helped
conceal the mark-ups from clients.
The Justice Department said Daspin was involved in creating
false transaction reports with fabricated details about order
executions. He also came up with a plan to avoid providing
real-time data to its clients, the Justice Department said.
Later, when some clients complained, the Justice Department
said, Lekargeren blamed the failure to deliver real-time data on
information technology issues.
In a call with reporters on Wednesday, Raman said both men
are cooperating with the government and the investigation is
The government said the scheme, which occurred over a period
of several years, victimized funds managed by charities,
religious organizations, universities and governments.
Andrew Ceresney, co-director of the SEC's enforcement
division, said that the ConvergEx was careful about which
customers it overcharged and tried to pick clients that might
not be paying close attention.
"Based upon the sensitivity of the customers and the
likelihood that they were paying attention to execution quality,
the firm then determined how much trading profit to take on
particular transactions," he said.
An attorney for Daspin declined to comment, and an attorney
for Lekargeren could not be immediately reached for comment.
In addition to pleading guilty to criminal charges, both
former traders settled civil charges with the SEC.
Daspin agreed to pay roughly $1.1 million in disgorgement
and prejudgment interest, and Lekargeren agreed to pay about
$117,000 in disgorgement and prejudgment interest.