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Bruce-Miller calls on DPP to prosecute DB&G over front-running case
Al Edwards
Friday, November 09, 2007
Chartered financial analyst and former JMMB executive, Steven Bruce-Miller, is calling on the Director of Public Prosecutions to invoke legal proceedings against Dehring Bunting &Golding (DB&G) in a "front-running" case that has gone before the Jamaica Stock Exchange (JSE).
Front-running is the illegal practice of stockbrokers executing orders on a securities for their own account before filling orders previously submitted by their customers. After the brokers have made their original transaction, they can expect to close out their position at a profit based on the new price level.
Front-running may involve either buying (where the brokers buy for their account, driving up the price before filling customers' buy orders) or selling (where the brokers sell for their own account, driving down the price before filling customers' sell orders.
For example, if a broker buys 20,000 shares of a stock for J$100 per share just before buying a large block of 400,000 shares for a customer, he may drive the price up to J$102 per share. If the broker is able to sell his newly purchased shares at J$101.75, he will have made J$35,000 in a few minutes. This J$35,000 is likely to be only part of the additional cost to the customer's purchase caused by the broker's self-dealing.
The broker has put his own financial interest above (or in front of) the customer's interest and is thus committing fraud. In the US he might also be breaking laws on market manipulation or insider trading.
Bruce-Miller's claim was that DB&G purchased 542,000 units of JMMB shares on a day that 605,000 units were traded, before purchasing 50,000 shares of his 200,000 share order on that day.
"They bought 50,000 units for me at J$12 at the highest price in the market after they had gobbled up all the shares that were available at lower prices for their own portfolio," said Bruce-Miller.
Bruce-Miller maintains that his order was received by DB&G on June 29, 2006, with the investment house placing their order on the system on July 3, 2006. The following day, Bruce-Miller says, his order was modified and within seconds of this taking place, DB&G modified and executed their orders to purchase 542,000 units.
Later that day, DB&G purchased 50,000 of my 200,000-unit order and then bought for themselves the 9,000 units I instructed them to buy.
"In the previous month (June 6), I bought over 200,000 units of JMMB shares on the JSE. These shares were transferred to the Trinidad Stock Exchange and sold profitably. I think that what happened here is that DB&G saw me making a profit and decided to do the same transactions. While I have no problems with DB&G doing the same trades, it must be done fairly," declared Bruce-Miller.
On September 25, 2006, Bruce-Miller referred the matter to the Jamaica Stock Exchange (JSE) pointing out that it constituted a breach of Section 41 of the Securities Act. The JSE in turn conducted a due diligence exercise and requested that DB&G settle the matter amicably.
With no resolution arrived at, the general manager of the JSE, Marlene Street's referral letter to the Disciplinary Committee on March 7th, 2007 read:
"Given that client order must take precedence over House/Principal Accounts, DB&G appears to be in breach of the JSE trading rules and the Securities Act."
The JSE then made a recommendation that read:
"Given that there seems to be a charge to which DB&G is answerable, that is the priority of trade given to the principal members instead of the client, whether, through mistake or not, the general manager is recommending that the Conduct Review Committee consider the issue and make a determination."
In July of this year, DB&G's then chief operating officer, Garfield Sinclair, told the Jamaica Observer that there was no foundation to Bruce-Miller's claim.
A leading attorney speaking on condition of anonymity said: "This is the first case of its kind in Jamaica and it is attracting a lot of attention. I am of the opinion that the DPP will indeed get involved."
Speaking with the Business Observer last night, Bruce-Miller said: "I have written to the Director of Public Prosecutions inviting him to consider prosecuting DB&G for breach of Section 41 of the Securities Act as they gobbled up for themselves shares I gave them instructions to buy for my account. They have done this despite receiving my order first. I have in my possession four different correspondence with four different items of explanations from DB&G attempting to explain why they 'front-ran' my order".
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