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SEC, DOJ Charge Hedge Fund Trader in Alleged Front-Running Scheme

Sean Wygovsky is accused of taking in $3.6 million from insider trading at a Canadian asset management firm.
By Michael Katz


The US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have charged a Canadian hedge fund trader with securities fraud and wire fraud for allegedly using inside information to conduct a front-running scheme in which he raked in more than $3.6 million.

Front-running is when a broker trading financial assets uses inside knowledge of a future transaction that is about to affect its price substantially. The legal complaints filed by the DOJ and the SEC allege that, over the course of more than six years, Sean Wygovsky had been committing insider trading through the misuse of confidential, material, non-public information about the securities trade orders of the firm he worked for. He allegedly did this by placing timely, profitable securities trades based on that information in accounts controlled by him or by family members.

Although the name of the company is omitted from the complaints, a LinkedIn profile for Sean Wygovsky that is now no longer available had listed him as being employed by Toronto-based Polar Asset Management Partners Inc. since 2013, the same year the complaints say he started working at the unnamed firm. And a 2016 magazine article profiling him as a rising star in the hedge fund industry said he worked for Polar Asset Management.

Wygovsky allegedly took advantage of the fact that the size of his firm’s trade orders often caused slight, temporary movements in the price of the securities traded. For example, if the firm made a large purchase of stock, the increased demand could cause a slight rise in the stock price, and if the firm was engaged in a large sale of stock, the increased supply could cause a slight drop in the stock price. Because Wygovsky had access to the firm’s trade orders, he knew in advance when a particular stock price would move slightly up or down based on that trading.

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“As alleged, Sean Wygovsky illegally exploited his access to his employer firm’s yet-to-be-executed trade orders to make numerous trades in anticipation of the bump or dip the firm’s buying or selling would cause,” US Attorney for the Southern District of New York Audrey Strauss said in a statement.

Wygovsky, who the US Attorney’s office said made the illegal trades over 700 times, allegedly tried to cover his tracks by trading or causing trading in brokerage accounts held in the names of close relatives of his. Two of his relatives allegedly moved millions of dollars between 2015 and 2020 from their trading accounts to bank accounts they controlled, and then wrote checks to Wygovsky and his immediate family members for hundreds of thousands of dollars. The two relatives also allegedly transferred hundreds of thousands of dollars to a Slovenian bank for the benefit of relatives of Wygovsky’s wife. 

“As alleged in our complaint, Wygovsky abused his position and his employer’s trust by front-running the very securities transactions that he was tasked with executing for his employer’s advisory clients,” Joseph Sansone, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement. “Thanks to the SEC’s development and use of sophisticated data analytics tools, Wygovsky’s alleged scheme was uncovered and his efforts to evade detection by using family members’ accounts failed.”

Wygovsky, 40, is charged by the US Attorney’s Office for the Southern District of New York with one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of wire fraud, which carries a maximum sentence of 20 years in prison. The SEC has charged him with violating the antifraud provisions of the federal securities laws and is seeking disgorgement of ill-gotten gains plus interest, penalties, and injunctive relief.

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Home > News > Market Moves > Market Killjoys: BlackRock, Goldman, RBC, Morgan Stanley
Market Moves

Market Killjoys: BlackRock, Goldman, RBC, Morgan Stanley

They all see a halt to the strong stock rally—anyway the third quarter is usually the worst.
By Larry Light


The Lord giveth, and the Lord taketh away. With apologies to the Book of Job, the same could be said for the soaring equities market. That’s the augury of some of the biggest Wall Street players, with downbeat previews for the rest of 2021.

The stock market may have reached record levels this year, but Thursday’s 0.86% drop in the S&P 500 could be a portent. Turns out that a batch of big-time prognosticators think we’re in for a downdraft or a plateau up ahead. Not helping: Historically, the third quarter (which we just entered) is always a relative laggard.

Market strategists at BlackRock, Goldman Sachs, RBC, and Morgan Stanley are among those concerned that a strong economy and the prospect of good earnings are not enough for the market to maintain its rally. As culprits in a coming slide or stasis, they point to inflation leeriness, the Federal Reserve’s possible tapering of its epic bond buying, and profit-margin pressures.

One ominous development that a lot of Wall Streeters are noticing is that the yield on the 10-year Treasury note is slipping. The benchmark bond closed Thursday at 1.28% annually, quite a drop from the 1.74% level March 31. Back then, spirits were more euphoric. Rising T-note yields often signal a rising stock market.

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Asset manager BlackRock this week downgraded US stocks to neutral and opined that the reopening trade was largely played out in the domestic markets. Thus, in its view, the growth from the economic revival was peaking.

At Goldman, chief U.S. equity strategist David Kostin wrote that he expects the S&P 500 will end 2021 at 4,300, just a hair below what it closed at yesterday. He blamed obstacles such as possible loftier borrowing costs and higher federal taxes for the underwhelming forecast year-end 2021. 

“Our economists’ expectations of higher interest rates and higher corporate tax rates by year-end are the primary reasons we forecast that the S&P 500 will trade sideways during the next six months,” Kostin wrote. 

To Morgan Stanley strategist Michael Wilson, the stock market will take a break this summer. “The bottom line is that the US economy is booming, but this is now a known known and asset markets reflect it,” he wrote in a research note. “What isn’t so clear anymore is at what price this growth will accrue. Higher costs mean lower profits, another reason why the overall equity market has been narrowing.”

At RBC, strategists find that investor optimism has faded “a bit.” The spread of COVID-19 variants is serving as a reminder that the pandemic isn’t over yet, they said in a report. Such a pandemic increase could crimp demand, the firm said. It tempered this gloomy comment by pointing to the strong cash positions of companies and consumers, which could counteract any market weakness.

Of course, the pessimistic outlook is in keeping with the seasonal effect on equities. Namely, that the third quarter is usually the dog. Since World War II, the S&P 500 gained an average of only 0.5% in the July-September period, versus increases of 1.9% to 3.8% for the other quarters, according to Sam Stovall, CFRA’s chief investment strategist.

And July is the best month of the lot. Stovall wrote that “the typical market mayhem doesn’t materialize until August and September, leaving the S&P 500’s return reputation for July tainted by association.” By the same token, Stovall observed, a greater average of corrections and bear markets started in July than for all months of the year.

What’s more, the CFRA sage went on, over the past quarter century, eight of 11 sectors in the S&P Composite 1500 Index (which covers all capitalization sizes), as well as the Nasdaq 100 and S&P 500 Growth indexes, outpaced the S&P 500 in the third quarter. The outperforming sectors were led by health care, real estate (since 2007), and technology, while communication services, consumer discretionary, energy, and materials typically declined.

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