The Securities and Exchange Commission has charged ITG Inc., and its subsidiary AlterNet, with violations of the Securities Act of 1993 and Regulations ATS. ITG has been accused of operating a secret desk of securities trades that have not been reported. The software company also allegedly abused their privilege and misused subscriber information. They have agreed to pay $20.3 million for the charges.
Between April through December 2010, ITG allegedly conducted secret proprietary trade and did not disclose it to their subscribers or SEC. The hidden plan was titled Project Omega. The project allegedly exchanged $1.3 billion shares, including 262 shares to their dark pool subscribers. According to the SEC, they marketed themselves as “agency only” brokers, supposedly conducting trades in their client’s best interest, but committed trades for personal gain. The SEC alleges that they failed to disclose this information to the subscribers.
Not only that, ITG also allegedly gleaned information about subscribers through software used by their sales and support team. According to the SEC, the company illegally used this information to create algorithms to tap into real time subscriber orders. Director of SEC’s Division of Enforcement Andrew J. Ceresney states ITG created a secret trading desk and misused highly confidential customer order and trading information for its own benefit. In doing so, ITG abused the trust of its customers and engaged in conduct justifying the significant sanctions imposed in this case.
Admitting their fault, ITG agreed to pay $2,081,034, the total revenue generated by Project Omega, with prejudgment interest of $256,532, and a penalty of $18 million. Currently, this is SEC’s largest penalty against an alternative trading system.