Lek Securities Corporation, a broker-dealer headquartered in New York, New York, along with the firm’s chief executive officer and part-owner, Samuel Lek, and former registered representative, Sergey Pustelnik, has been charged by the Securities and Exchange Commission (SEC) in a Complaint containing allegations that the firm, Lek and Pustelnik engaged in a market manipulation scheme which defrauded investors. Securities and Exchange Commission v. Lek Securities Corporation, et al., No. 17-CV-1789 (S.D.N.Y. Mar. 10, 2017).
According to the Complaint, two manipulative trading schemes were engineered by a foreign trading entity, Avalon. Apparently, Pustelnik worked as a control person for Avalon, where he and another Avalon principal, Nathan Fayyer, partook in the schemes with the help of Lek Securities Corporation and Samuel Lek. Avalon reportedly gained access to the securities markets of the United States through Samuel Lek and his firm.
The SEC alleged that the first scheme involved layering, where from December of 2010 to September of 2016, Avalon placed illegitimate orders to purchase and sell stock in order to falsify the stock’s supply and demand. Avalon’s alleged non-bona fide orders led the firm to gain better execution prices on legitimate orders that the firm later placed. The SEC alleged that this scheme took place on thousands of occasions, wherein the firm raked in millions of dollars in profit.
Additionally, the Complaint alleged that Avalon engaged in a cross-market manipulation scheme, where from August of 2012 to December of 2015, United States stocks were purchased and sold by Avalon at a loss to influence the price of options. The Complaint revealed that the firm later profited via placing options trades at prices which would have been unavailable had Avalon not engaged in the scheme. The SEC alleged that there was no economic basis behind Avalon’s trading strategy.
The Complaint stated that at least $28,000,000.00 in illegal profits were generated by Avalon through utilizing Lek Securities Corporation and Samuel Lek. Apparently, Samuel Lek provided Avalon with permission and approval for Avalon to partake in these activities despite his knowledge or reckless disregard of Avalon’s scheme to manipulate the markets. The SEC further alleged that Lek Securities Corporation profited from the commissions and fees which Avalon generated.
Apparently, Pustelnik first worked as a foreign finder for Lek Securities Corporation prior to becoming a registered representative who managed Avalon’s account. According to the Complaint, traders for Avalon were recruited by Pustelnik to effect the cross-market manipulation and layering schemes. Further, portions of Avalon’s profits were apparently paid to Pustelnik in return for his efforts in carrying out the manipulative trading scheme by Lek Securities Corporation. Pustelnik purportedly profited through fees and commissions which were accumulated by Lek Securities Corporation.
The Complaint contained twelve claims for relief based upon alleged violations of Securities and Exchange Act of 1934 Sections 9(a)(2) and 10(b), Rule 10b-5, as well as Securities Act of 1933 Section 17(a)(1) and 17(a)(3).
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