US SEC Orders Unregistered Broker-Dealer to Pay a $2.75 Million Penalty


The US Securities and Exchange Commission (SEC) announced on Tuesday that it had charged Neovest Inc., a provider of an order and execution management system (OEMS) that facilitates electronic trading, for operating as an unregistered broker-dealer, being the first case of its kind charging an OEMS provider.

According to the press release, Neovest – a subsidiary of JPMorgan Chase & Co. – agreed to pay a $2.75 million penalty for failing to register as a broker-dealer under federal securities law. The SEC’s order details that Neovest performed its activities through Neovest Trading Inc, its registered broker-dealer, before being acquired by the major financial firm. However, after JPMorgan acquired it, the company withdrew its registration, continuing to operate the OEMS as an unregistered broker-dealer.

“Neovest played a role in determining the routing options that were available to its customers by entering into agreements with the destination brokers.  (…) in exchange for its OEMS services, Neovest also continued to receive transaction-based compensation by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest,” the SEC stated.

Leaving Customers Unprotected

That said, the watchdog believes that withdrawing the broker-dealer registration left its customer unprotected. “According to the SEC’s order, Neovest circumvented the regulatory regime that grants broker-dealers the privilege of operating in our markets. Today’s charges underscore the SEC’s commitment to securing the important investor protections that flow from broker-dealer registration,” Joseph Sansone, Chief of the SEC Enforcement Division’s Market Abuse Unit, commented.

As part of the SEC’s order, Neovest agreed to cease and desist from committing or causing any violations “and any future violations” of Section 15(a) of the Exchange Act.

Recently, the US SEC settled charges against Loci Inc. and its CEO, John Wise, for allegedly making false and misleading statements connected to fraud and an unregistered securities offering.

(Photo: Wikimedia Commons)

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