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SEC Wins Jury Trial in Layering, Manipulative Trading Case

(HedgeCo.Net) Jurors in New York federal court have returned a verdict in the Securities and Exchange Commission’s favor against a trading firm and two individuals for their roles in an unlawful trading scheme that generated more than $25 million in illicit profit.

The SEC’s evidence at trial showed that Nathan Fayyer and Sergey Pustelnik used their trading firm, Avalon FA Ltd., to illegally profit from two manipulative trading schemes. First, the defendants engaged in a layering scheme, a trading practice which involved placing and canceling orders to trick others into buying or selling stocks at artificial prices. Second, they engaged in cross-market manipulation, which involved buying or selling stocks to artificially impact options prices. These schemes generated more than $25 million in ill-gotten profit for Avalon. Fayyer was Avalon’s named owner, and Pustelnik kept his controlling interest in Avalon undisclosed while embedding himself as a registered representative at Lek Securities Corp., a New-York based brokerage firm, in order to facilitate Avalon’s trading. Lek Securities and its Chief Executive Officer, Sam Lek, who settled with the SEC prior to trial last month, admitted that the trading occurred and was manipulative.

“This case involved sophisticated, manipulative trading schemes, which generated millions in illicit profits,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement. “Today‚Äôs verdict demonstrates the SEC’s willingness to take on complex trading schemes in litigation and our ability to achieve strong results.”

“Layering and spoofing undermine the transparency and integrity of the markets. As the jury recognized, such fraudulent conduct violates the securities laws, and has no place in our markets,” added Steven Peikin, Co-Director of the SEC’s Division of Enforcement.

The jury found Avalon, Fayyer, and Pustelnik liable on all counts, including that they violated the antifraud provisions of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, that Avalon and Fayyer violated the market manipulation provision of Section 9(a)(2) of the Exchange Act, and that Avalon, Fayyer, and Pustelnik were each liable as a control person for the violations of others, according to Section 20(a) of the Exchange Act.

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