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Mar 15, 2010 10:42 am
  An irreverent Wall Street Blog
by Bill Singer SEC Case: Heads I Win, Tales You Lose Written: March 15, 2010

On Wall Street there is supposed to be a winner for every loser -- you know, two sides to every coin and a mirror image for every trade.  However, seems that a couple of would-be alchemists thought that they found a way to circumvent the physics of trading.  In the end, no cigar.


Get Your Scorecard


In a Complaint filed in federal court on March 9, 2010, the Securities and Exchange Commission (SEC) alleges that in October 2003, a Spanish Bank (“Bank”) opened an account with Jose O. Vianna, Jr. ("Vianna"), then a broker with the Maxim Group, LLC, (“Maxim”). The purpose of this account was to effect proprietary trading for the Bank, and Vianna was designated the registered representative for the Customer A account.


In its promotional literature, Maxim describes itself as full-service investment banking firm headquartered in New York. Maxim provides a full array of financial services including investment banking; private wealth management; and global institutional equity, fixed-income and derivatives sales and trading as well as equity research. Maxim currently manages in excess of $5 billion in client assets. The investment banking group focuses on middle market and emerging growth companies within the shipping, energy, health care, technology, retail, and business and financial services sectors. The firm's institutional coverage North and South America, Europe and Asia.

Employee, a citizen and resident of Spain, was a portfolio manager employed by the Bank at its office in Madrid, Spain.  Employee was responsible for trading securities in the Bank’s proprietary trading accounts, including the one maintained at Maxim.

At the end of April 2007, Employee referred Creswell Equities, Inc.("Creswell"), a British Virgin Islands corporation with an office in Geneva, to Maxim;  and on June 20, 2007, Creswell opened an account there.  Vianna was the registered person assigned to that account.Creswell gave Employee the discretion to direct trading in its Maxim account and paid Employee a fee for doing so. Although Vianna knew that Employee was directing trading in the Creswell account, Vianna did not inform Maxim of this fact.


Let the Good Times Roll (but reallocate the bad)


Starting in July 2007 and continuing until March 2008, acting in concert with Employee, Vianna carried out a fraudulent scheme to divert trading profits from the Bank to Creswell. 


 On at least 57 occasions during that period, Vianna entered simultaneous orders in the Bank and Creswell accounts to trade the same number of shares of the same stock. In each instance, Vianna entered an order to buy the stock for the account of one customer and entered an order to sell the stock for the account of the other customer. The corresponding orders were for blocks of stock, ranging from 20,000 to 310,000 shares.  In each instance, Maxim executed the corresponding orders at the same price.


In 28 of the 57 instances in which Vianna entered corresponding orders for the Bank and Creswell accounts, the market moved so that the Bank's trade was profitable and Creswell's trade was unprofitable. Initially, that would be good news for the Bank; however, in each such profitable instance, Vianna improperly misused his access to Maxim's order management system to change the identity of the customer on each order so that the profitable trade was reallocated to Creswell’s account and the unprofitable trade was reallocated to the Bank's account, thus causing Maxim's records to inaccurately reflect the account for which various orders were entered and transactions effected.



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