(Bloomberg) -- Two former Cantor Fitzgerald LP brokers were sued by U.S. securities regulators over claims that they secretly split trading commissions, bypassing the firm’s compensation policies.
The Securities and Exchange Commission filed the suit against Adam Mattessich of New York and Joseph "Jay" Ludovico of Brooklyn, in Manhattan federal court Friday. They are accused of working with another trader on Cantor’s international equities desk to circumvent a 2002 decision by Mattessich’s supervisor to deny his request for commissions on transactions in certain customer accounts he serviced.
Cantor Fitzgerald also agreed to pay a $1.25 million penalty for failing to maintain accurate books and records. Marc P. Berger, director of the SEC’s New York office, said “efforts to circumvent the SEC’s investor protection laws will not be tolerated.”
According to the suit, Mattessich got around this by transferring his accounts to Ludovico and the other trader, who wasn’t identified, both of whom were eligible to receive commissions. Ludovico and the other trader would then pay Mattessich a portion of their commissions via personal check, the SEC said. Cantor Fitzgerald’s policies have prohibited off-book commission-splitting since at least 2006, the agency said.
"Once again the SEC has brought an action where the facts are misstated and the law misinterpreted,” Denis Kelleher, Mattessich’s attorney, said in an email. “My client vigorously denies these allegations and is confident that when the dust settles he will be fully and completely vindicated.”
Karen Laureano-Rikardsen, a spokeswoman for Cantor Fitzgerald, and Ludovico declined to comment.
According to the suit, Mattessich was working as a senior execution trader in about 2002 when he asked the firm to pay him commissions on transactions in the accounts he serviced. Sales traders at Cantor were mostly responsible for working with customers, while execution traders were mostly tasked with routing and fulfilling orders, the suit says, so Mattessich’s request was denied by his supervisor, who told him to transfer the accounts to more junior traders.
Mattessich then approached Ludovico and the unidentified trader and proposed to have his accounts reassigned to them, according to the suit. They agreed and began making payments on a monthly basis, with the unidentified trader paying Mattessich through 2010 and Ludovico through December 2013, the SEC said. The scheme continued even after Mattessich was promoted to head of the international equities desk in 2004.
Ludovico paid Mattessich at least $58,200 in unrecorded commission compensation, according to the suit. Mattessich is also accused of arranging in 2011 for another unidentified junior execution trader to receive similar payments, which the SEC said totaled more than $90,000.
Mattessich, 47, joined Cantor in 1996, according to Financial Industry Regulatory Authority records. He was allowed to resign in February as a result of the alleged conduct, the SEC said in the suit. Ludovico, 41, had been associated with Cantor from October 1998 until he was also allowed to resign in February, the suit says.
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