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Broker Exchanged Special Access to IPOs for Cash Kickbacks - SEC
by Howard Haykin
The SEC charged a Wall Street stockbroker with illegally accepting more than $1 million in undisclosed kickbacks for giving certain customers preferential access to lucrative IPOs, enabling them to reap major trading profits in the secondary markets.
BACKGROUNDS. Brian Matthew Hirsch, 42, a resident of Melville, NY, has 19 years’ experience with 5 firms. From 2008 to 2015, he was associated with Barclays Capital, where he worked as a Registered Rep on the firm’s wealth syndicate desk. When Stifel, Nicolaus acquired that business in 2015, Hirsch on board and continued to perform those same services until December 2017, when he resigned. Hirsch’s BrokerCheck file has no relevant disclosures.
Joseph Spera, 56, is a former day trader who resides in Boca Raton, FL. At the time he left the business in 2002, Spera had 15 years’ experience with 5 firms – the last being UBS PaineWebber. On 12/11/17, Spera was charged by the SEC in an unrelated civil action on insider trading charges. He also pled guilty on that date to parallel criminal charges, filed by the U.S. Attorney’s Office for the District of New Jersey.
Customer A (a relevant individual in this case), is a stock trader who resides in New York, NY. During the time that Customer A was a Registered Rep at several broker-dealers (1989 through 2006), his securities license was suspended by the NYSE and withdrawn or revoked in multiple states.
SEC FINDINGS. While associated with Barclays Capital (then Stifel, Nicolaus), Hirsch gave preferential access to hundreds of initial and secondary public offerings to Spera and at least one other brokerage customer (“Customer A”), in exchange for undisclosed cash kickbacks. Hirsch did so through an arrangement with Spera and Customer A, in which they paid Hirsch cash kickbacks equal to a percentage of the secondary market trading profits they made on the offering stock that Hirsch allocated to them – 24% for Spera, 25% for Customer A. In exchange, Hirsch gave them preferential access to, and greater allocations of, public stock offerings marketed by his employers for their issuer clients.
In most instances, Spera and Customer A flipped, or sold, the stock into the market as soon as possible, often turning a substantial profit. Joseph Spera made $4 million in trading profits on the offering allocations he received from Hirsch. Spera, in turn, paid Hirsch approximately $1 million in cash. Customer A paid Hirsch more than $200,000 in kickbacks, which would equate to $800,000 in illicit trading profits for Customer A.
Along the way, Hirsch, Spera and Customer made materially false statements to Barclays Capital and Stifel, Nicolaus.
- Hirsch falsely represented in quarterly and annual ethics certifications that he: (i) had no undisclosed conflicts of interest with respect to his employment at the firm; (ii) had not entered into any quid pro quo arrangements with respect to offering allocations, which were expressly prohibited by firm policy; and (iii) had not received or solicited any prohibited or undisclosed gifts, including cash.
- Both Customer A and Spera falsely attested that, upon receiving IPO allocations through Hirsch, no restricted person held a prohibited beneficial interest in his or her account. Hirsch, in fact, had a beneficial interest in those accounts and he was was a restricted person as defined in the certification form - which defined beneficial interest as any “economic interest, including the right to share in gains or losses.”
The SEC’s investigation continues.
[Click here for further details: SEC Complaint.]