Broker-Dealer Litigation - Greenberg Traurig LLP

compliance officer testified as a representative of the broker-dealer. A corporate employee is
generally presumed to possess knowledge of facts that she would learn in the usual course of her
employment. Because the plaintiff could not prove that the broker-dealer received written notice
of the transaction, he could not establish the duty element of a claim for negligent supervision.
Summary judgment was affirmed.
In re BNY Mellon Sec. LLC, Release No. 63724, 2011 SEC LEXIS 252 (Jan. 14, 2011).
Without admitting or denying the allegations, a broker-dealer settled charges brought by
the Securities and Exchange Commission arising out of the broker-dealer’s alleged failure to
reasonably supervise an order desk manager on its institutional order desk and traders under his
supervision over a nine-year period. The order desk manager failed to meet his duty of best
execution on orders for certain plan customers by executing cross-trades for the benefit of a
favored handful of accounts held by hedge funds and select individuals. The broker-dealer’s
supervisory procedures failed to establish adequate procedures on how to follow-up on red flags
raised in exception reports. In addition, the broker-dealer never conducted a thorough review to
determine whether the order desk manager was fulfilling his best execution responsibilities to
provide the best price a customer could likely obtain on the open market. If the broker-dealer
had such procedures in place, it likely would have prevented and detected the violations by the
order desk manager and traders. Pursuant to the settlement, the broker-dealer was censured and
agreed to pay disgorgement of $19,297,016, prejudgment interest of $3,748,431, and a civil
monetary penalty of $1 million.
In re Merrill Lynch, Release No. 63760, 2011 SEC LEXIS 280 (Jan. 25, 2011).
The Securities and Exchange Commission instituted administrative proceedings against a
broker-dealer pursuant to Sections 15(b)(4) and 21C of the Securities Exchange Act of 1934.
The SEC alleged the broker-dealer operated a proprietary trading desk which traded securities
solely for the firm’s benefit and had no role in executing customer orders. The broker-dealer
represented to customers that their order information would be maintained on a strictly
confidential basis. However, traders from the proprietary trading desk obtained information
about institutional customer orders from traders on the market making desk and used it to place
trades in the broker-dealer’s proprietary accounts. In doing so, the broker-dealer misused the
institutional customers’ information and acted contrary to its representations to the customers. In
addition, the broker-dealer had agreements with certain institutional and high net worth
customers that it would charge only a commission equivalent for executing riskless principal
trades. However, in certain instances, the broker-dealer also charged customers, in addition to
the riskless commission equivalent, undisclosed markups and markdowns by filling customer
orders at prices less favorable to the customer than the prices at which the broker-dealer
purchased or sold the securities in the market. As a result of this conduct, the broker-dealer
failed to reasonably supervise traders associated with the proprietary trading desk and its market
making operations, with a view to detecting and preventing violations of the Exchange Act. The
broker-dealer, without admitting or denying the allegations, consented to a censure, a cease and
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