The US Securities and Exchange Commission (SEC) has charged the former head of ConvergEx’s transition management business with fraud.
Khaled Bassily, who left the company in 2013, was accused by the SEC of participating in “a fraudulent scheme to hide from customers that they paid substantially higher amounts than disclosed for the execution of trading orders,” according to a filing on the regulator’s website.
Over five years at ConvergEx, Bassily allegedly “took steps to conceal” the routing of some charges through the company’s Bermuda-based affiliate to take hidden charges from trades.
These “trading profits” were “in addition to and often substantially higher than the commissions paid by customers to have their orders executed,” the SEC said.
According to the SEC’s filing, Bassily allegedly “engaged in, and directed and encouraged others to engage in, repeated deceptive acts designed to create a false impression regarding the costs paid by the customers.”
These included making “false and misleading statements to customers” and “scheming with traders… in order to maximize trading profits, while minimizing the risk that customers would detect the hidden charge.”
Bassily also allegedly encouraged the use of technology to conceal the extra charges, helped to secure false business cards for a trader pitching business to a prospective new client, and “assisted in drafting false and misleading marketing materials.”
Three subsidiaries of ConvergEx were fined a combined $150 million by the SEC in December 2013 for overcharging clients. The company’s former CEO Anthony Blumberg was charged with securities fraud in August 2014. Last year, former trader Michael Craig Marshall pleaded guilty to charges related to the arrangements, and Craig Lax, former CEO of G-Trade Services, a broker-dealer wholly owned by ConvergEx, settled charges with the US regulator, paying a $783,000 fine.
ConvergEx—which shut down its transition management business in mid-2013—had not responded to a request for comment at the time of publication.
Last week, former State Street transition management staffers Ross McLellan and Edward Pennings were charged with fraud relating to a similar alleged overcharging scheme.
Background: Reluctant Voices (a CIO exposé of transition management’s problems from 2012)
Related: Fraud Charges, Arrest for Ex-State Street Transition Managers & ConvergEx Hit with $150M Fine for Overcharging Clients