Former Trader Settles SEC Front-Running Charges Over $47 Million Scheme

A former equity trader at a major asset manager and his trading associate agreed to settle SEC charges that they ran a six-year front-running scheme generating about $47 million in illegal profits. Both consented to final judgments permanently enjoining them from further violations, subject to court approval.

According to the SEC's complaint, filed in the Southern District of New York in December 2022, the trader worked at a firm managing roughly $283 billion in discretionary client assets and had advance knowledge of its planned trades. The SEC alleged that he repeatedly tipped his associate, including by prepaid phones, about impending large trades before execution. The associate then used two brokerage accounts to trade the same securities ahead of or alongside the firm's orders, closing positions once prices moved favorably.

The SEC alleged that this pattern produced a 97 percent dollar-weighted win rate across more than 1,600 correlated trades from September 2016 to August 2022, and that the trader received at least $540,000 from his associate between September 2016 and April 2017.

Both defendants consented to be enjoined from violating (i) Section 17(a) of the Securities Act ("Fraudulent Interstate Transactions"), (ii) Section 10(b) of the Exchange Act ("Regulation of the Use of Manipulative and Deceptive Devices"), and (iii) Rule 10b-5 ("Employment of Manipulative and Deceptive Devices"). The trader also consented to be enjoined from violating Section 17(j) of the Investment Company Act ("Transactions of Certain Affiliated Persons and Underwriters") and Rule 17j-1(b)(1) and (3) ("Personal Investment Activities of Investment Company Personnel").

The proposed judgments would order disgorgement of $12,684,000 from the trader, and disgorgement of $34,627,659 plus about $12.0 million in prejudgment interest from the associate, all deemed satisfied by the forfeiture order in a parallel criminal case.