A class action filing was recently made against a trade execution services and solutions provider and some of its executives, whom were accused of violating federal securities laws by making materially false and misleading statements.
The securities class action claim against Investment Technology Group, Inc., or ITG, was filed in the United States District Court for the Southern District of New York on behalf of individuals who purchased shares in the company during the class period between February 28, 2011 through August 3, 2015, according to a press release. The defendants allegedly violated the Securities Exchange Act of 1934 by making materially false and misleading statements to investors regarding the ITG’s POSIT network, an alternative trading system or “dark pool.”
According to ITG’s website, the firm is an independent execution and research broker. The company partners with global portfolio managers and traders through the investment process from decision to settlement. The firm’s POSIT network was launched in 1987, and has since worked to “empower buyside investors.” ITG runs 15 offices in nine countries that are able to meet the needs of large equity portfolios.
“ITG failed to reveal that it was under SEC investigation by fall of 2013.”
Allegations against ITG and its executives
The class action complaint alleges that through the class period ITG ‘held itself out as an “agency-only” and “conflict-free” broker,’ the press release explained. The firm also suggested that “POSIT safeguarded client trading data.” However, the company allegedly failed to disclose a number of facts about its alternative trading system’s operations, including the certain details of an SEC Settlement Order.
The government document explained that between April 2010 through July 2011, ITG operated a proprietary trading pilot called “Project Omega,” within the firm’s AlterNet subsidiary. It involved “crossing against sell-side clients in POSIT” and violations of ITG’s policies and procedures by Hitesh Mittal, a former ITG managing director, head of algorithmic trading, and head of liquidity management.While he was head of “Project Omega,” Mittal and other employees allegedly accessed private client data while at the same time running a proprietary trading strategy – a conflict of interest. Actions such as these are violations of Regulation ATS.
Additionally, ITG failed to reveal that it was under SEC investigation by fall of 2013, and faced law enforcement action by May 2015. Thus, the company risked taking on substantial fines and legal costs, in addition to reputational harm and loss of customers.
ITG stock prices fell several times through the summer
The complaint goes on to allege that on July 29, 2015, after the markets closed, the company issued a press release revealing for the first time that it was under SEC investigation. ITG noted in the release that it expected to pay a total of $20.3 million in various fines and costs, including “an $18 million civil penalty, disgorgement of $2.1 million in improperly gotten trading revenues, and about $250,000 in prejudgment interest.” Following this revelation, On July 30, ITG stock prices dropped about 23.5 percent, or $5.64 per share, to close at $18.36 per share.
On Aug. 3, 2015, ITG it was replacing its CEO and its general counsel. Later that day news reports revealed that the CEO’s departure was due to his failure to disclose POSIT’s improper conduct to the board. Following this announcement, stock in ITG dropped once again, about 4 percent, or $0.84 per share, to close at $19.51 per share.
The next day Steven R. Vigliotti, a defendant and the company’s CFO, revealed that in the days following the announcement of a potential SEC settlement, ITG’s volume market share dropped around 25 percent. Following this disclosure, stock prices dropped yet again, around 5.28 percent, or $1.03 per share, to close at $18.48 per share.
The class action filing goes on to allege that on Aug. 12 the SEC announced its settlement with ITG, as well as an order explaining the firm’s own admissions of wrongdoing, and mandating that it pay a civil penalty of $18 million, the largest ever levied against an alternative trading system by the SEC.
For more information on this case or other class action litigations, please contact Adam Foulke at 203-987-4949 or email@example.com