U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23613 / August 8, 2016
Securities and Exchange Commission v. John T. Place, et al., No. 2:16-cv:4291 (E.D. Pa. filed Aug. 8, 2016)
SEC Charges Three Individuals and Brokerage Firms with Fraud for Deceiving Customers About Commissions
The Securities and Exchange Commission today charged three individuals and the now-defunct firms Global Transition Solutions, Inc. and Global Transition Solutions, LLC (together, GTS) with fraud for misleading their current and prospective customers about the fees they charged in connection with securities transactions.
According to the SEC's complaint, filed in federal court in Philadelphia, Pennsylvania, John T. Place, GTS' Chief Executive Officer, John P. Kirk, GTS' President, and his brother, Paul G. Kirk, GTS' General Counsel and Chief Operating Officer, operated the two GTS firms as a "transition management" brokerage consulting business. The complaint alleges that GTS assisted its customers - largely public pension funds - in handling large orders to buy and sell securities when transitioning a large portfolio from one investment manager or strategy to another, or liquidating it. The complaint further alleges that Place and the Kirk brothers told many of their customers that GTS would receive only explicitly disclosed commissions charged on customers' trades. In reality, GTS also received additional revenue from mark-ups and mark-downs taken by other brokers and shared with GTS. Over the course of the scheme, GTS received at least $13 million in undisclosed payments.
The complaint further alleges that Place and the Kirk brothers and GTS worked with ConvergEx Global Markets Limited, a Bermuda-based broker-dealer, and two other brokerage firms to execute the scheme. In December 2013, the SEC announced charges against ConvergEx Global Markets and two sister brokerage subsidiaries that agreed to pay more than $107 million and admit wrongdoing to settle the matter. ConvergEx Global Markets also pled guilty to related criminal charges.
The SEC's complaint charges all of the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and GTS, Inc. with violating Section 15(c)(1) of the Exchange Act. The complaint also alleges that Place and the Kirk brothers are liable as control persons of both GTS entities for the foregoing violations and that they aided and abetted GTS, Inc.'s violations of Section 15(c)(1) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement on a joint and several basis with prejudgment interest, and civil monetary penalties.
The SEC's investigation, which is continuing, has been conducted by Richard E. Johnston and Ellen F. Bortz under the supervision of Jennifer S. Leete. The SEC's litigation will be led by Daniel J. Maher and Stephan J. Schlegelmilch. The SEC appreciates the assistance of the Fraud Section of the U.S. Department of Justice's Criminal Division.