They allegedly exchanged envelopes stuffed with up to $10,000 ― cash only to avoid drawing scrutiny from banks. The swaps, made in bars and restaurants over a three-year period, were purportedly meant to garner privileged access to IPOs, netting handsome profits for those involved.
It's part of what the SEC alleges was a "pernicious" multimillion-dollar IPO kickback scheme involving two clients and a New York-based broker.
The regulator charged Brian Hirsch, 42, on Tuesday with accepting more than $1 million in undisclosed kickbacks in exchange for giving certain clients preferential access to lucrative IPOs ― helping them to reap trading profits in secondary markets. The SEC also brought charges against Jonathan Spera, a client and former day trader, according to court documents.
''Kickback schemes are pernicious and have no place in the securities markets,'' Sanjay Wadhwa, senior associate director for enforcement in the SEC's New York Regional Office, said in a statement. ''As alleged in our complaint, Hirsch lined his own pockets by secretly sharing in customer trading profits that he engineered in violation of his obligations to his employers.''
Neither Hirsch nor his attorney could be reached for comment.
Over a roughly three year period, the New York-based advisor hid his actions from his employers, which were not named in the SEC complaint. Court documents say the first firm was acquired by the other in December 2015.
FINRA BrokerCheck records show a Brian Hirsch working in New York and having been registered with Barclays and Stifel. In December 2015, Stifel closed on an acquisition deal for Barclays's U.S. wealth management unit, which was known for syndicate business.
The SEC, whose complaint says Hirsch quit his job this month, declined to comment on Hirsch's employment. A spokesman for Stifel also declined to comment on the case.
The regulator says that Hirsch "breached his obligations to his employers and betrayed his employers’ trust by secretly entering into prohibited quid pro quo arrangements with two of his desk’s customers."
He and the clients allegedly worked out an arrangement by which he would give them greater access to IPOs. The SEC says that in most instances they sold their stock as soon as possible to turn a profit, and then paid a percentage of their profits to Hirsh—24% in Spera’s case and 25% from the second customer who was not named in the SEC complaint—in the alleged kickbacks.
While he pocketed $1 million, Spera made approximately $4 million in trading profits from the allocations he received from Hirsch, according to the SEC.
Spera, 52, has kept a document labeled "Phantom," which detailed the transactions: 443 separate stocks and a total of 1,541 allocations from Jan. 5, 2012, through Nov. 19, 2015.
Neither Spera nor his attorney could be reached for immediate comment.
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