NEW YORK (Reuters) - U.S. and New York regulators on Wednesday fined two units of BGC Partners Inc (BGCP.O) $25 million to settle charges their brokers concocted fake trades to fraudulently induce clients to transact in foreign exchange options at unfair prices.
BGC Financial LP will pay a $15 million civil fine and GFI Securities LLC will pay $10 million, both divided equally between the U.S. Commodity Futures Trading Commission and the office of New York Attorney General Letitia James.
The New York settlements also resolve criminal probes of BGC and GFI, which agreed to enter non-prosecution agreements, retain an independent monitor for one year, upgrade oversight and training, and cooperate with James’ ongoing investigation.
BGC Partners did not immediately respond to a request for comment. Its chief executive, Howard Lutnick, who also runs the financial services company Cantor Fitzgerald, was not accused of wrongdoing.
Regulators said that in 2014 and 2015, BGC and GFI brokers reported hundreds of thousands of fake bids and offers for emerging markets foreign exchange options, a practice known as “flying.”
The brokers allegedly did this to create an illusion of greater market liquidity and, sometimes, narrower spreads, to encourage clients to trade on their electronic platforms when they otherwise would not have.
James said BGC and GFI brokers also frequently reported fake trades, including thousands based on “flown” bids and offers, to encourage clients to enter genuine follow-up trades that would generate commissions.
BGC and GFI did not admit or deny wrongdoing in settling with the CFTC. They admitted to using fraudulent practices to solicit and accept orders to buy and sell options as part of their settlements with New York.
The New York settlements resolve claims under that state’s powerful Martin Act securities law.
Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Matthew Lewis