Twin Brothers Charged in Spoofing, Mismarking Schemes

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By Cameron Finch

Dec. 3 — Three Chicago-based traders were named by the Securities and Exchange Commission in a first of its kind civil enforcement action for allegedly mismarking option orders and engaging in a $225,000 spoofing scheme that defrauded market participants.

The alleged option scheme marks the agency's “first enforcement proceeding focusing on customer versus professional option order types,” SEC Enforcement Director Andrew Ceresney said Dec. 3 in a media conference. With respect to the spoofing allegations, the suit is the commission's first regarding a scheme that took advantage of an exchange's maker-taker program.

Mismarking Options

According to the SEC, from October 2010 to December 2012, twin brothers Behruz and Shahryar Afshar and their friend, Richard F. Kenny IV, fraudulently mismarked option orders as customer orders, rather than professional orders. Option exchanges accord customer orders a number of benefits, including higher liquidity rebates, lower fees, and execution priority over professional, the SEC stated.

“By deceiving the exchanges with orders mismarked as customer instead of professional,” Ceresney said, “the Afshars' accounts netted over $2 million in lower fees and higher rebates.”

Spoofing Scheme

The Afshars and Kenny also engaged in spoofing between May 2011 and December 2012, by taking advantage of the “maker-taker” program offered by options exchanges, the SEC alleged.

The three allegedly induced other market participants to trade by placing “large hidden orders” on one side of the market and “smaller displayed orders” on the other side of the market, distorting trading prices. By tricking others to trade against their orders, the Afshars and Kenny continually earned rebates for executed orders, receiving over $225,000 from the scheme, the SEC said.

The commission is seeking disgorgement, civil monetary penalties, and permanent injunctive relief.

Counsel for the defendants couldn't be reached immediately for comment.

To contact the reporter on this story: Cameron Finch in Washington at

To contact the editor responsible for this story: Phyllis Diamond at