The SEC issued a proposed plan for distributing $23 million to some institutional clients of BNY Mellon Securities harmed by cross trades that favored some hedge fund customers.
According to a January 2011 administrative complaint by the Securities and Exchange Commission, BNY Mellon Securities failed to supervise institutional order desk manager Mark Shaw, whom the agency said manipulated the timing of trades from November 1999 through March 2008 “to advantage a handful of accounts held by individuals and hedge funds at the expense of accounts belonging to various employee stock purchase plans, employee stock option plans, direct purchase and sale plans, and similar plans.”
During that period, BNY Mellon had more than 700 plan customers, and SEC officials estimate that more than 80% of the trades were made at their expense.
An unrelated SEC charge against one of the hedge funds triggered an internal investigation by BNY Mellon, which reported the cross trading to the SEC. BNY Mellon agreed to settle the case without admitting or denying guilt. Due to the company's cooperation, its civil penalty was held to $1 million.
If the distribution plan proposed Jan. 31 is approved by the SEC following a comment period, the allegedly harmed clients will be eligible for $19.3 million in disgorgement and $3.7 million in prejudgment interest; Mr. Shaw agreed to repay $218,591 and a $150,000 civil penalty.
BNY Mellon sold the assets of the subsidiary, known at the time of the transactions as Mellon Securities, in 2009. Calls to BNY Mellon were not returned at press time.
