What you need to know about high frequency traders
As the stock market begins to recover from its wildest rally, the industry is grappling with the fallout from a scandal involving its top traders.
The SEC has launched an investigation into a trader named Peter Schiff, who is accused of buying and selling shares that were being bought and sold in the hopes of making a quick profit.
While he may have violated insider trading laws, Schiff has said he’s a victim of a system designed to protect the public.
Schiff has been a staunch critic of high frequency trader Marc Faber, a former colleague at JP Morgan Chase who is facing up to five years in prison.
The Wall Street Journal has reported that Schiff’s broker, Peter Schiff Capital, also used a hedge fund in which he made investments.
Schiff’s attorney, David R. Greenberg, says the accusations are false and that the hedge fund was in no way connected to Schiff.
He says Schiff’s actions have nothing to do with him.
“He’s a client of ours, and he’s doing his job,” Greenberg said.
“There’s nothing improper or inappropriate about any of his transactions.”
Schiff’s firm has a record of making investments that have gone awry, including buying and reselling the stocks of a major bank, Deutsche Bank AG, that lost $1.2 trillion and were then sold to private investors, including Schiff.
The firm has been investigated in the past by the SEC and the Justice Department, as well as by the Securities and Exchange Commission.
Schiff declined to comment for this story.
In a statement, Schiff’s lawyers said they would defend the charges vigorously.
“Peter Schiff has never engaged in any wrongdoing, and we believe the allegations against him are completely baseless,” said a lawyer for Schiff, David P. Farrar.
“The SEC investigation is ongoing and we will vigorously defend itself.”
Schiff has worked as a trader on the New York Stock Exchange since 2013.
He was arrested and charged last year with making false statements in a financial disclosure filing.
He faces up to 10 years in federal prison if convicted.
Schiff was charged with wire fraud and conspiracy to commit wire fraud after he was arrested in 2014 and charged with making trades with a firm that was linked to the infamous “Ponzi scheme” scheme that cost the financial services industry billions of dollars.
Federal prosecutors say Schiff used the company to invest in investments and then sold those investments to other investors in hopes of gaining a quick return.
He’s accused of using a company called Blackrock Inc. to create an offshore fund called Blackstone, which he then sold for a profit.
The funds were used to buy up companies, such as Amazon, that were struggling to raise capital.
Schiff also used Blackstone’s stock as collateral for some of the investments he made.
The fund was reportedly used to purchase a stake in Uber Technologies Inc., which he later sold for $1 billion.
The Justice Department has accused Schiff of using the funds to pay for trips, luxury hotel stays and even a trip to Las Vegas.
Schiff is currently under a court order to appear before the SEC in October.
He is due to be sentenced in June.
The New York Fed’s Andrew S. Tarullo told the Journal in January that Schiff may face criminal charges related to his investments.
Tarullaho also said that Schiff “did not know” that he was being investigated by the federal government.
He also said it would be “very unusual” for a hedge trader to be accused of insider trading.
Tarulow said the SEC was investigating whether the funds that Schiff used to invest were legitimate investments.
He said the government “was looking into the possibility that they may be investments in foreign exchange, or other assets that could have been obtained through insider trading.”
SEC chairman Jay Clayton said last week that the agency would review the allegations.
Schiff had not responded to requests for comment by deadline.
“This is a very important and complex matter and it is going to be handled in an appropriate manner,” Tarullahow told the WSJ in January.
“It will be the SEC’s responsibility to make a determination whether or not this person engaged in insider trading,” Tarullow said.
Taruliow said that, given that Schiff was arrested last year, the SEC would review his actions.
Tarullaow told Bloomberg that Schiff had “a long history of mismanagement, mismanagement that we’re very aware of and we’re looking into it.”
Tarullahw said he had not yet seen the SEC filing.
“We’ll be doing a thorough review of it,” Tarullaw said.
The DOJ also is investigating Schiff’s dealings with the hedge funds.
A federal judge in Washington, D.C., has ordered the SEC to make sure that all transactions between Schiff and the funds are properly recorded.
He ordered the agency to file a report by January 15.
“While the SEC is reviewing the information that the SEC has received from the SEC, the government has not made any findings or allegations that Mr. Schiff committed or is responsible for violations of the insider trading law,” said Andrew Levin,