SEC, DOJ charge analyst in $8.5M front-running scheme
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Thursday, September 23, 2021

SEC, DOJ charge analyst in $8.5M front-running scheme

By John Filar Atwood

SEC used data analysis tools to detect the suspicious pattern of small profits that spanned six years.

The SEC charged a quantitative analyst for two asset management firms for conducting a years-long front-running that netted him $8.5 million. The U.S. Attorney’s Office for the Southern District of New York brought criminal charges in a parallel action (SEC v. Polevikov, September 23, 2021).

The SEC claimed that the analyst had access to real-time, non-public information about his employers’ securities orders and trades, and used that information to trade on, and ahead of, his employers’ trades. According to the complaint, on over 3,000 occasions from at least January 2014 through October 2019 he executed same-day trades in the same securities his employers traded in on behalf of their clients.

The analyst closed his positions the same day as he opened them, capitalizing on the price movement caused by his employers’ large trades. The SEC alleged that he concealed the scheme by executing the trades in the account of his wife, who uses a different last name.

Data analysis. The SEC’s Market Abuse Unit used data analysis tools to uncover the suspicious trading patterns. The staff found that from 2014 to 2019, the analyst used his wife’s account to place 3,111 short-term trades in stocks and 2,874 (92.4 percent) of those trades overlapped with trades by the asset management firms.

Of the analyst’s 2,874 overlapping trades, 2,858 (99.4 percent) were in the same direction as the trades by the firms. According to the data, the timing of the analyst’s trades in his wife’s account also coincided with the asset management firms’ trades. In particular, nearly 88 percent of the overlapping trades he executed from his wife’s account occurred within 90 minutes of the firms’ trade order being created.

Charges. The SEC charged the analyst with violating the antifraud and reporting provisions of the federal securities laws, and is seeking disgorgement of ill-gotten gains plus interest, penalties, and injunctive relief. The complaint names the analyst’s wife as a relief defendant.

The case is No. 1:21-cv-07925.

Attorneys: David Misler for the U.S. Securities & Exchange Commission.

MainStory: TopStory FraudManipulation InvestmentCompanies NewYorkNews

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