A Czar of Overseas Day Trading Is Banned From U.S. Brokerage Industry

Discussion in 'Wall St. News' started by ajacobson, Sep 17, 2018.

  1. ajacobson

    ajacobson

    Finra, a self-funded Wall Street overseer, spearheaded the probe that Simon Librati settled Monday. PHOTO: BRENDAN MCDERMID/REUTERS
    2 COMMENTS
    By
    Dave Michaels
    Sept. 17, 2018 2:19 p.m. ET

    A pioneer in the lucrative business of overseas day trading was banned from the U.S. brokerage industry Monday, the latest target of a government campaign to root out alleged manipulation in American markets stemming from foreign trading floors.

    The trader, Simon Librati, agreed to a five-year suspension from 10 U.S. stock exchanges and a $400,000 fine, according to disciplinary settlements with U.S. regulators resolving a nearly five-year investigation of his firms’ trading. The outcome ends Mr. Librati’s ability to control or work for a U.S. brokerage firm, although it doesn’t bar him from trading personally. That is typical of such cases.


    Mr. Librati, who neither admitted nor denied the allegations, has been involved in high-stakes trading for over a decade, providing what U.S. regulators say was a conduit for overseas traders engaged in rapid-fire manipulation, mainly from China and Eastern Europe. At his empire’s peak around 2012, his traders were responsible for three billion shares changing hands a month, or as much as 3% of U.S. stock volume at the time, according to former employees and brokers who handled his firm’s trades.

    The Financial Industry Regulatory Authority, a self-funded Wall Street overseer, and the Securities and Exchange Commission have for years waged a campaign to choke off access points for such manipulation from overseas traders. Finra spearheaded the probe that Mr. Librati settled Monday.

    Mr. Librati declined to comment. His lawyer said Mr. Librati “looks forward to moving on with his life.”

    Simon Librati at a booth for one of his companies, World Trade Securities, at the TradersEXPO conference in Las Vegas in 2008.
    The day-trading impresario never sent orders himself, and tried to curb questionable activity by terminating traders and developing a surveillance system to screen for manipulative activity, said the lawyer, Stephen Crimmins of Murphy & McGonigle P.C.

    According to the settlement, Mr. Librati was responsible because he was an owner of firms whose traders repeatedly engaged in “layering,” a practice that attempts to rig stock prices with fake orders—and beat computers at the game of high-speed trading. Finra detected over 200,000 cases of allegedly manipulative orders by traders working for Mr. Librati’s firms from 2012 to 2013, according to Finra’s disciplinary settlement.


    Layering involves firing off a flurry of orders designed to create the impression that supply or demand have changed. Once the trader gets the favorable price he wants, he cancels his other orders, usually leaving his counterparties with losses.

    Repeated many times, layering—and a similar stratagem called “spoofing”—can produce big profits.

    Mr. Librati and a business partner, Maurice Bensoussan, financed the trading, reviewed the strategies and reaped a cut of profits that flowed from the activity, according to Finra’s agreement. Mr. Bensoussan, a French businessman, also agreed to be barred from owning or working for a brokerage firm in the U.S. A lawyer for Mr. Bensoussan declined to comment.

    Mr. Librati, who grew up in Montreal, entered day trading in 2000 when he opened a Montreal branch of Swift Trade Inc., a Toronto firm that became the first global collective of rapid-fire foreign day traders.

    By 2012, Mr. Librati’s network of trading firms had relationships with 1,200 traders in China, according to two people familiar with the business. Such traders routed their orders through funds that Mr. Librati and his partners registered in the Cayman Islands, according to Finra’s settlement.

    Mr. Librati’s managers sometimes cited regulatory scrutiny of the business when they withheld payment from overseas traders working for Mr. Librati’s businesses, said Jack Liu, a trader in Xiamen, China, who added he wasn’t paid about $30,000 that he was owed. Mr. Librati’s lawyer declined to comment.

    Mr. Librati had relationships with brokers across Wall Street, which gave the traders direct access to U.S. stock exchanges. Many of those brokers have taken heat from regulators for lax oversight of his traders’ orders.

    Under pressure from Finra and the SEC, Wedbush Securities Inc. severed ties with Mr. Librati’s business in October 2012, according to regulatory filings and a person familiar with the matter. A Finra complaint against Wedbush, filed in 2014, stemmed mostly from the broker’s failure to supervise Mr. Librati’s traders, who were suspected of layering, according to the latest disciplinary settlement.

    Wedbush paid about $4.2 million in 2014 and 2015 to settle SEC and Finra probes over claims that it sponsored access to risky overseas traders without adequate controls. Wedbush said at the time that “to our knowledge, the trading activity at issue did not result in any losses to any other market participants, to Wedbush Securities or to its clients.”


    Mr. Librati often spent time in Miami Beach, Fla., where he has owned a waterfront mansion. His Instagram feed has shown pictures of him lounging on his boat with a girlfriend and smiling next to actor Al Pacino at an event.

    “He’s been very ambitious, and not always very clean, but he’s done very well,” said Daniel Zini, Mr. Librati’s former partner in the business he operated through Swift Trade.

    Lately, Mr. Librati has moved into the lightly regulated world of cryptocurrencies. A Russian group calling itself United Traders has listed Mr. Librati as a partner on a website for an initial coin offering. The group’s promotional materials said it would build cryptocurrency trading platforms.

    “He’s great at selling the dream,” Mr. Zini said. “But you can have offices all around the world and you just don’t know what these traders are doing to make money.”
     
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  2. traderjo

    traderjo

    h....m interesting sound like SWIFT trade or it new "Avatars" so how does this affect various "Trading floors" operating around the world on US exchanges also those companies overseas who are genuine trading firm NOT engaged in above mentioned activity
     
  3. d08

    d08

    Funny how when Steve Cohen was in charge of SAC and his subordinates committed large scale insider trading, he said "I didn't know anything about it" and that was it.
    Now with this Librati guy, it's completely opposite.
    There is no consistency in US securities laws.

    Also, why is it relevant for the markets where the traders are located? Clearly these are double standards.
     
    qlai likes this.
  4. traderjo

    traderjo

    "why is it relevant for the markets where the traders are located"
    you mean individual traders or the Firm on whose name the account is?
    at the end of the day any regulator would be concerns with who is playing in the market!

    I guess what matters is who the actual firm is and it's clearing broker in USA "Under pressure from Finra and the SEC, Wedbush Securities Inc. severed ties with Mr. Librati’s business in October 2012,

    Apart from harming others if these firms are taking deposits from "Traders" then they could be harming them also!
     
    d08 likes this.