Ukraine trading firm Avalon allegedly made more than $21M in layering scheme, SEC claims

Posted by on March 11, 2017 11:31 pm
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Linus Unah – Fourth Estate Contributor

Washington, DC, United States (4E) – The U.S. Securities and Exchange Commission (SEC) Friday announced fraud charges against a Ukraine-based trading firm Avalon FA Ltd accused of manipulating the U.S. markets on several occasions.

The SEC’s complaint alleged that Avalon touted itself to traders as a destination to engage in layering, a scheme in which orders are placed but later canceled after tricking others into buying or selling stocks at artificial prices, resulting in illicit profits.

Avalon allegedly made more than $21 million in the layering scheme involving U.S. stocks during a five-year period, the SEC claimed.

According to the SEC’s complaint, Avalon also made more than $7 million in illicit profits by buying and selling U.S. stocks at a loss in order to manipulate the prices of the stock so that it could then profitably trade at artificial prices.

Avalon allegedly used traders in Eastern Europe and Asia to conduct its trading, and the firm kept a portion of the profits and collected commissions from the traders.

The SEC’s complaint also announced fraud charges against Avalon’s named owner Nathan Fayyer and Sergey Pustelnik, who allegedly kept his controlling interest in Avalon undisclosed and attached himself at Lek Securities as a registered representative in order to use his position to facilitate the schemes.

The SEC further alleged that Lek Securities and its owner Samuel Lek made the schemes possible by providing Avalon with access to the U.S. markets, approving the cross-market trading scheme, and improving its trading technology to assist Avalon’s trading.

According to the SEC’s complaint, Lek Securities also relaxed its layering controls after Avalon complained.

Avalon was the highest-producing customer for Lek Securities in terms of trading commissions, fees, and rebates generated, the SEC added.

“As alleged in our complaint, Avalon openly marketed itself as a destination for manipulative trading, and Lek Securities opened the gate to allow the schemes into the U.S. markets despite repeated warnings that its customer was manipulating the market,” Stephanie Avakian, acting director of the SEC’s enforcement unit, said in a statement.

After filing its complaint in a federal court in New York, the SEC said it obtained an emergency court order freezing Avalon’s assets held in its account at Lek Securities as well as freezing and repatriating funds that Avalon has transferred overseas.

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