On February 4, 2014, the Securities and Exchange Commission (“SEC”) announced charges against two traders involved in a “parking” scheme in which one trader temporarily placed securities in the other’s trading book in order to bypass a policy at his firm that penalizes traders if they hold securities for too long. These penalties would have affected the trader’s year-end bonus.
The SEC charges allege trader Thomas Gonnella solicited the assistance of Ryan King, a trader at another firm to purchase several securities, with the understanding that Gonnella would repurchase them at a profit for King’s firm. The alleged parking scheme and round-trip trades caused Gonnella’s firm to lose approximately $174,000.
The charges against Gonnella allege he willfully violated Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The order alleges that he willfully aided and abetted and caused violations of Section 17(a) of the Exchange Act and Rule 17a-3.
King, who has cooperated with the SEC investigation, agreed to settle the charges by disgorging his profits and being barred from the securities industry. Litigation against Gonnella continues in a proceeding before an administrative law judge.
Firms should take the opportunity to review their Policies and Procedures, as well as their internal controls, to identify whether or not they are at risk for this type of activity and institute procedures to mitigate the risk.
For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020, or email us at firstname.lastname@example.org.
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