UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 79248 / November 4, 2016

ADMINISTRATIVE PROCEEDING

File No. 3-16017

____________________________________

:

:

:

LINKBROKERS DERIVATIVES LLC

:

:

:

Respondent.

:

____________________________________:

In the Matter of

ORDER APPROVING

PLAN OF DISTRIBUTION

On August 14, 2014 the Commission issued an Order Instituting Administrative and

Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange

Act of 1934, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order

(“Order”)1 against Linkbrokers Derivatives LLC (“Linkbrokers” or “Respondent”). The Order

found, among other things, that certain employees of Linkbrokers working at the firm’s “Cash

Desk” perpetrated a scheme by charging certain firm customers false prices on over 36,000

transactions from at least 2005 through at least February 2009 (“Relevant Period”). In these

transactions, Linkbrokers embedded hidden profits in the form of price markups or markdowns

into the execution price reported to the customer. According to the Order, the scheme was

devious and difficult for Linkbrokers’ customers to detect, in part because the employees at

Linkbrokers selectively engaged in the scheme when the volatility in the market was sufficient to

conceal the fraud from the customer. The Order found Linkbrokers willfully violated Section

15(c)(1) of the Securities Exchange Act of 1934, which prohibits fraudulent conduct by a broker

or dealer when effecting any transaction in, or inducing or attempting to induce the purchase or

sale of, any security. The Order required Respondent to pay disgorgement of $14,000,000.

On December 11, 2015, the Commission issued an Order Instituting Administrative and

Cease-and-Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933, Section

15(b) of the Securities Exchange Act of 1934, and Section 9(b) of the Investment Company Act

of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order

(“Nowak Order”)2 against Aaron Nowak, a registered representative associated with Linkbrokers

during the Relevant Period. Nowak worked as a sales trader and middle-office assistant entering

orders he received from sales brokers on the Cash Desk. The Commission found that Nowak and

other Linkbrokers personnel communicated false and/or misleading information to Linkbrokers

customers in connection with the scheme. The Commission also found that Nowak willfully

1

2

Exchange Act Rel. No. 72846 (Aug. 14, 2014).

Securities Act Rel. No. 9988 (Dec. 11, 2015).

violated Sections 17(a)(2) and (3) of the Securities Act of 1933, which prohibits fraudulent

conduct in the offer or sale of securities. The Nowak Order ordered Nowak to pay a civil penalty

of $5,000 and created a Fair Fund for the penalty. The Nowak Order further ordered that the Fair

Fund created for Nowak’s penalty be transferred to this administrative proceeding and combined

with the funds collected in this matter.

On August 15, 2016, the Commission published a Notice of Proposed Plan of

Distribution and Opportunity for Comment (“Notice”)3 pursuant to Rule 1103 of the

Commission’s Rules on Fair Fund and Disgorgement Plans.4 The Notice advised interested

persons that they could obtain a copy of the proposed plan of distribution (“Plan”) from the

Commission’s public website at http://www.sec.gov/litigation/fairfundlist.htm or by submitting a

written request to Michael S. Lim, Esq., United States Securities and Exchange Commission, 100

F Street, NE, Washington, DC 20549-5876.

The Notice also advised that all persons desiring to comment on the Plan could submit

their comments, in writing, no later than thirty (30) days from the date of the Notice (1) to the

Office of the Secretary, United States Securities and Exchange Commission, 100 F Street, NE,

Washington, DC 20549-1090; (2) by using the Commission’s Internet comment form

(http://www.sec.gov/litigation/admin.shtml); or (3) by sending an e-mail to rulecomments@sec.gov. The Commission received no comments on the Plan.

The Distribution Fund is comprised of the amounts of disgorgement ($14,000,000) and

civil penalties ($5,000) paid by Linkbrokers and Nowak, respectively, to the Commission. As

set forth in the Plan, the methodology allocates the Distribution Fund, less any reserve for taxes,

fees or other expenses of administering the Distribution Fund (“Net Distribution Fund”), by

dividing the total harm for each eligible customer’s account by the aggregate total harm of all

eligible customers’ accounts multiplied by the Net Distribution Fund. An eligible customer

account’s distribution from the Net Distribution Fund will be adjusted by any money received

from restitution funds in any related criminal proceeding.

The Division of Enforcement now requests that the Commission approve the Plan.

Accordingly, it is hereby ORDERED, that pursuant to Rule 1104 of the Commission’s

Rules on Fair Fund and Disgorgement Plans,5 the Plan is approved.

For the Commission, by its Secretary, pursuant to delegated authority.

Brent J. Fields

Secretary

3

Exchange Act Rel. No. 78577 (Aug. 15, 2016).

17 C.F.R. § 201.1103.

5

17 C.F.R. § 201.1104.

4

2