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Securities Fraud: When Pennies Count

Most securities fraud cases involve significant thefts from individual victims, like the alleged $64 billion Ponzi scheme run by Bernie Madoff. However, some cases show that fraudulent conduct involving small amounts of money can add up to millions of dollars of illicit profit if the conduct is allowed to continue over a long period.

The Justice Department recently charged two former brokers at the New York office of Linkbrokers Derivatives with securities fraud and conspiracy for adding a few pennies to the cost of each individual trade processed by the firm. The Linkbrokers firm is not named in the suit, but one trader wore a wire to record incriminating statements made by his co-workers. He has entered a guilty plea and is cooperating with the government’s case.

The firm executed trades for high-volume clients, including hedge funds, and in these situations, the way to get the best price for the client is to quickly execute their trades when prices are favorable. The brokers are accused of charging a slightly higher price or lower price than the best price available at the moment, and then hiding the real cost of the trade from the client. The brokers mispriced some 36,000 trades between 2006 and 2010.

If you have questions about your securities account, call Tacopina, Seigel & DeOreo As this case shows, even small differences in the price of each trade added to your account can make you a victim of a serious case of securities fraud.

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