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How Pennies Add Up in a Securities Fraud Case

Charges filed by the Justice Department last week accuse two former brokers at the New York office of Linkbrokers Derivatives, Marek Leszczynski and Benjamin Chouchane, of securities fraud and conspiracy for secretly adding a few pennies to the cost of securities trades processed by the firm to generate $18.7 million in gains.

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Criminal complaints filed in Federal District Court in Manhattan accuse Mr. Leszczynski and Mr. Chouchane of charging a slightly higher price for a trade, or lowering the sale price, and then hiding the actual cost from the clients. According to the S.E.C., more than 36,000 trades from 2006 to 2010 involved pricing issues, with the amounts ranging from a few dollars to as much as $228,000 in one instance.

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The transactions outlined in the criminal complaints generated modest profits. Mr. Leszczyncki is accused in one trade of marking up the purchase price of 20,000 shares by 1.2 cents a share, generating a profit of $240. A transaction involving Mr. Chouchane had a mark-up of 1.24 cents on an order for 43,000 shares that resulted in a profit of $533.20.

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The irony to me is that all of us can likely remember a time when the mark up on a stock trade was $0.25 a share.
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