GUMM GETS SPOOFERED, AHCHOO->SEC FILES SUBPOENA ENFORCEMENT ACTION AGAINST ROLAND THIBODEAU, FORMER SENIOR
VICE-PRESIDENT OF JNI CORPORATION, IN CONNECTION WITH INSIDER TRADING
INVESTIGATION
The Commission today announced the filing of a subpoena enforcement
action in the United States District Court for the District of Columbia,
against Roland J. Thibodeau of San Diego, California, the former Senior
Vice-President of Sales for JNI Corporation. JNI, with headquarters in
San Diego, California, is listed on the NASDAQ National Market System.
Thibodeau has failed to comply with the Commission's August 2, 2001,
subpoena for documents and testimony.
In its Application to the Court, the Commission requested that the Court
enter an Order to Show Cause why Thibodeau should not be ordered to
comply with the Commission's subpoena, as well as an Order Requiring
Obedience to the Subpoena. The Application asserted that Thibodeau
failed to appear for testimony, and did not produce any documents in
response to twelve of fourteen categories of the subpoena. The staff of
the Commission is conducting a non-public investigation, pursuant to
Formal Order, to determine whether there have been violations of Section
17(a) of the Securities Act of 1933, Section 10(b) of the Securities and
Exchange Act of 1934, and Rule 10b5-1 promulgated thereunder, in
connection with the trading of JNI securities. [SEC v. Roland J.
Thibodeau, USDC District of Columbia, Miscellaneous Action
No.1:01MS00437 (LR- 17219)
SEC CHARGES SIX INDIVIDUALS WITH SPOOFING
The SEC filed four cases today against six individuals who engaged in a
fraudulent trading practice known as "spoofing." Spoofing occurs when a
person trading in the stock markets uses a displayed limit order to
manipulate prices, typically in The Nasdaq Stock Market, and thereby
obtains an improper trading advantage.
The specific actions filed by the Commission today include complaints
and settlements involving Israel Shenker; Joseph Blackwell, Timothy
Blackwell, Bradford Blackwell; and Leonid Shpilsky in three separate
cases. All these individuals agreed, without admitting or denying the
Commission's allegations, to cease and desist or be permanently enjoined
from violating the Section 17(a) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934. Collectively,
these individuals will pay $43,860.63 in disgorgement, prejudgment
interest and civil penalties. The civil action against Shpilsky also
names two other individuals as relief defendants, who will pay a total
of $13,430 in disgorgement and prejudgment interest.
The Commission also filed a complaint against Alexander Pomper alleging
that he engaged in a manipulative spoofing strategy designed to obtain
fraudulent price improvements in Nasdaq stocks. The complaint seeks an
order permanently enjoining Pomper from future violations of the above-
referenced antifraud provisions, and seeks disgorgement, prejudgment
interest and a civil penalty.
"Spoofing misuses rules that protect investors, and it defrauds market
makers. These cases today make clear that the Commission will take
strong action against spoofing, even in cases involving relatively small
profits. Were spoofing to become widespread, it could reduce liquidity
for bona fide investors," said Thomas C. Newkirk, Associate Director in
the Commission's Division of Enforcement.
The assistance of the National Association of Securities Dealers (NASD)
in these matters is acknowledged. To date, the Commission has brought
six actions against spoofing and the NASD has brought seven actions
against spoofing.
Background
Stock prices on Nasdaq are quoted in the form of bid and offer prices.
The bid price is a proposal to purchase at a specified price, and the
offer price is a proposal to sell at a specified price. The highest bid
and lowest offer prices quoted Nasdaq are displayed publicly as the
"National Best Bid and Offer" or NBBO. Market-making firms on Nasdaq
regard the NBBO as an important indicator of the prices they should
provide to their customers, and often guarantee customers that their
orders will be given the NBBO prices, at a minimum, for smaller orders.
In other words, a customer seeking to sell stock will receive at least
the bid price shown in the NBBO and a customer seeking to buy will pay
not more than the offer price shown in the NBBO.
The SEC's Limit Order Display Rule generally requires that market makers
display customer limit orders of 100 shares or more. if the price of the
limit order is better than the previously displayed NBBO. A customer
limit order with a superior price changes the NBBO when displayed, by
either raising the bid side or lowering the offer side of the NBBO.
A trader engaged in spoofing typically places a limit order for the
purchase or sale of a thinly-traded Nasdaq security that is for a better
price than the then-current NBBO. This generally results in the limit
order being publicly displayed, which changes the NBBO by improving
prices on one side of the market. The trader proceeds by immediately
obtaining execution through other market making firms of one or more
other orders on the opposite side of the market at the improved price,
and then endeavors to cancel the initial limit order.
For example, the Commission's complaint against Alexander Pomper alleges
that Pomper placed a limit order to buy 300 shares of Gumtech
International ("GUMM") at $11.375 per share when the best bid side of
the NBBO was $11.0625 per share and the best offer side was $11.4375 per
share. Due to the Limit Order Display Rule, Pomper's $11.375 per share
buy order became the new best bid price. Pomper then placed an order to
sell 2000 shares of GUMM at $11.375 per share through another market
making firm. Pomper obtained immediate execution at $11.375 per share
(rather than $11.0625 per share) because the other market maker honored
the $11.375 best bid price created by Pomper's buy order. After Pomper
obtained his price improvement of $.3125 per share, or $625.00, he
canceled his order to buy at $11.375. Pomper's conduct was deceptive
because he improved the NBBO with a limit order he did not actually want
filled.
By engaging in these manipulative practices, "spoofers" cause market
makers to buy or sell stock at prices that were created by a deception.
Spoofing undermines the integrity of the prices quoted by the market
makers by inserting into the NBBO prices that do not reflect bona fide
proposals to trade. It improperly injures market makers, and violates
the federal securities laws. [SEC v. Leonid Shpilsky, Alexander
Shushkovsky and Grigory Kagan, (D.D.C. Nov. 5, 2001)]; [SEC v. Israel
M. Shenker, (D.D.C. Nov. 5, 2001) and In the Matter of Israel M.
Shenker, Administrative Proceeding File No. 3-10631, Securities Act of
1933 Release No. 33-8029 and Securities Exchange Act Release No. 34-
45017] ; [SEC v. Joseph Ronald Blackwell, Bradford Dylan Blackwell and
Timothy Ryan Blackwell, (D.D.C. Nov. 5, 2001) and In the Matter of
Joseph R. Blackwell, Bradford D. Blackwell and Timothy R. Blackwell,
Administrative Proceeding File No. 3-10632, Securities Act of 1933
Release No. 33-8030 and Securities Exchange Act Release No. 34-45018.];
[SEC v. Alexander M. Pomper, (E.D.N.Y. Nov. 5, 2001)] (LR-17221);
(Press Rel. 2001-129) |
