The Securities and Exchange Commission in the US yesterday charged 38 people, including traders from several Wall Street firms, with civil fraud following an industry-wide investigation into kickbacks and bribery in the murky world of stock lending.
The US attorney for the eastern district of New York, which is conducting a criminal investigation into the matter, has brought criminal charges against 15 of the 38. Five of those individuals were arrested yesterday morning. The attorney's office said the other 10 had already pleaded guilty.
Defendants include 17 current or former traders at Morgan Stanley, Van der Moolen, Janney Montgomery, AG Edwards, Opp-enheimer, TD Waterhouse and Nomura Securities.
The authorities said the traders conspired in a series of schemes with 21 stock loan "finders" to skim off profits on transactions. They pocketed more than $12 million over almost a decade, according to the SEC. The defendants were largely junior employees.
The scam involved the traders paying sham finders' fees to companies controlled by them or their relatives. The phony "finders" included a postman, a perfume salesman, a dental receptionist and a pharmacist, said the SEC. Finders act as intermediaries to locate stock to borrow.
"The defendants shared in the sham finder fees through secret kickback arrangements. In some cases, defendants met monthly . . . to exchange thousands of dollars in cash, often wrapped in newspapers or stuffed into envelopes," said the SEC.
