May 5, 2014
In early April, the SEC brought cease-and-desist proceedings against two companies and five individuals. Visionary Trading LLC operated an office in New Jersey where its owners, Joseph Dondero, Eugene Giaquinto, Lee Heiss, and Jason Medvin, along with sixteen other individuals, engaged in day-trading through various accounts held at Lightspeed Trading LLC. Visionary Trading has never been registered with the SEC, but Lightspeed Trading is a registered broker-dealer. From May 2008 through November 2011, Visionary and its owners paid commissions to Lightspeed to trade in these accounts, and Lightspeed’s registered representatives shared a portion of the transaction-based compensations with Visionary. According to the SEC Order, Visionary and its owners violated various SEC Rules by operating an unregistered broker-dealer. Lightspeed aided and abetted these violations by holding the accounts and allowing Visionary to trade in them. Specifically, the Order points to Eugene Giaquinto. Giaquinto was an owner of Visionary, but he was also a registered representative of Lightspeed from January 2010 through November 2011. So, along with aiding and abetting Visionary, Lightspeed and its CEO, Andrew Actman, are also accused of failing to supervise its registered representative, Giaquinto, in connection with his causing Visionary’s violations.
From 2010 to 2011, Giaquinto received commission payments from Lightspeed for trading conducted by its Visionary customers. Giaquinto would deposit the money into a Visionary bank account and make payments to the other Visionary owners. Giaquinto and other Lightspeed registered representatives knew that Visionary was receiving a portion of the Lightspeed commission payments. And Lightspeed had plenty of red flags waved under its nose alerting it that its registered representatives were sharing the transaction-based compensation they were being paid in connection with the trading activity in the Visionary accounts. Lightspeed knew that Giaquinto was affiliated with Visionary. Furthermore, Jason Medvin, a Visionary owner who was unregistered and not an employee of Lightspeed, frequently contacted Lightspeed and Actman about the compensation payments. This is not the first time Lightspeed has come under fire from the SEC for deficiencies in its supervisory process. According to its CRD, Lightspeed had regulatory actions brought against it in 2012, 2010, and 2006.
Another Visionary owner, Joseph Dondero, has also been independently accused in this SEC Order for engaging in a manipulative trading strategy called “layering” or “spoofing.” This involves using non-bona fide orders, or orders the trader doesn’t intend to execute, in order to induce people to buy and sell securities at a price not representative of actual supply and demand. Specifically, Dondero would place a bona fide or legitimate order and then immediately entered numerous non-bona fide orders to induce market interest in the initial, bona fide order. As soon as the execution against the bona fide order was complete, Dondero would then cancel the other orders. He repeated this strategy on the opposite side of the market to close out the position. According to the SEC Order, Dondero reaped approximately $984,398 in ill-gotten gains as a result of this manipulative strategy. He placed hundreds of thousands orders and cancelled them more than 90% of the time. Dondero has been order to pay over $1 million in disgorgement and pre-judgment interest.