The Securities and Exchange Commission has charged ITG Inc., and its subsidiary
AlterNet, with violations of the Securities Act of 1993 and Regulations
ATS. ITG has been accused of operating a secret desk of securities trades
that have not been reported. The software company also allegedly abused
their privilege and misused subscriber information. They have agreed to
pay $20.3 million for the charges.
Between April through December 2010, ITG allegedly conducted secret proprietary
trade and did not disclose it to their subscribers or SEC. The hidden
plan was titled Project Omega. The project allegedly exchanged $1.3 billion
shares, including 262 shares to their dark pool subscribers. According
to the SEC, they marketed themselves as “agency only” brokers,
supposedly conducting trades in their client’s best interest, but
committed trades for personal gain. The SEC alleges that they failed to
disclose this information to the subscribers.
Not only that, ITG also allegedly gleaned information about subscribers
through software used by their sales and support team. According to the
SEC, the company illegally used this information to create algorithms
to tap into real time subscriber orders. Director of SEC’s Division
of Enforcement Andrew J. Ceresney states
ITG created a secret trading desk and misused highly confidential customer
order and trading information for its own benefit. In doing so, ITG abused
the trust of its customers and engaged in conduct justifying the significant
sanctions imposed in this case.
Admitting their fault, ITG agreed to pay $2,081,034, the total revenue
generated by Project Omega, with prejudgment interest of $256,532, and
a penalty of $18 million. Currently, this is SEC’s largest penalty
against an alternative trading system.