Traders Engaged in an Illicit Parking Scheme

February 4, 2014

Two traders at dually registered broker-dealer/investment adviser firms were charged by the SEC for engaging in a fraudulent “parking” scheme in which one trade temporarily placed securities in the other’s trading book to avoid penalties that would affect his year-end bonus. The SEC alleges that Thomas Gonnella solicited the assistance of Ryan King to evade a policy at his firm that penalizes traders financially if they hold securities for too long.  Gonnella arranged for King, who worked at a different firm, to purchase several securities with the understanding that Gonnella would repurchase them at a profit for King’s firm.  By parking the securities in King’s trading book in order to reset the holding period when he repurchased them, Gonnella’s intention was to avoid incurring any charges to his trading profits and ultimately his bonus for having aged inventory.
According to the SEC, the alleged round-trip trades caused Gonnella’s firm to lose approximately $174,000.  After Gonnella’s supervisor began inquiring about the trades, Gonnella and King took steps to evade detection by interposing an interdealer broker in subsequent transactions and communicating by cell phone to avoid having conversations recorded by their firms.  Gonnella and King were eventually fired by their firms for the misconduct.
Click here to access the administrative action.