Bridge Information Systems Inc. has been censured and fined $125,000 by the Chicago Board Options Exchange (CBOE), following a review of the company's role in the unauthorized trading activities that diverted more than $1 million to four traders' and other Bridge employees' personal accounts (IMT, Oct. 2, 1992).
Bridge provides market data and analytics services to institutional investors, money managers and other users. These customers are encouraged to make trades through Bridge Trading Co., a broker/dealer sister company of Bridge Information Systems.
In the CBOE decision, Bridge's chairman--and father to one of the traders involved--Charles Lebens, was barred indefinitely from all supervisory authority over the trading desk. The action was taken as part of an offer of settlement with the CBOE's Business Conduct Committee, which had investigated the activities at Bridge. Bridge--and Lebens--settled without admitting or denying the allegations.
The CBOE decision regarding Lebens individually was taken late last week. The committee's sole action in the case was to "admonish" the Bridge founder. Bridge officials didn't return calls seeking comment by press time.
Lebens' son John has yet to reach a final settlement with the CBOE's committee. Two other traders involved are also awaiting settlement. But the CBOE committee has recommended that the younger Lebens be barred from trading for several years, according to one source.
The trading activities in question involved more than $1 million over a period of several years. The CBOE charged that traders' personal losses in stock index options trades were converted to losses for Bridge's principal or error account--in part by delaying or falsifying trade tickets. Traders assigned profitable trades to their personal accounts--and in some cases to the accounts of Bridge sales assistants, according to the committee's findings.
QUARTER IN QUESTION
Bridge's traders number approximately 16. Four are under investigation. The committee found that the executives responsible for overseeing trading activities were unaware of the unauthorized trades for a period of at least two years. Lebens, two senior executives and the company itself failed to adequately supervise the traders, according to the committee.
The decision states that, "from, in or about January 1989 through, in or about June 1991, C. Lebens failed to clearly delineate the supervisory and compliance related functions of BTC [Bridge Trading Co.]."
The committee concluded that Lebens was made aware of the activities in or shortly after a Bridge management committee meeting in May 1991. One month later, a senior officer of Bridge told Lebens of additional activities involving traders' assigning profitable transactions to the accounts of several Bridge sales assistants, the decision states.
In its decision, the committee found that, subsequent to learning of the unauthorized trading activities, Lebens "failed to ensure that reasonable supervisory measures were implemented to prevent the continuation of that course of conduct."
Further, it found that: "As a consequence of C. Lebens' failure to ensure that reasonable procedures were implemented for the opening and supervising of BTC employee accounts, Trader 1 was allowed to change his personal trading account that was identified by his name to an account that was identified by a number." The identity of Trader 1 was not revealed.
Following three pages of facts and findings, the decision regarding Lebens reads: "The sanction to be imposed shall consist of an admonishment," and thereby admonished him. Observers note that Lebens is a highly visible member of the investment community--and that his son is still facing a decision.
In addition to the decision regarding Lebens, Bridge reached an agreement to appoint a new compliance officer and senior registered options principal, both roles Lebens had filled. Further, Bridge must submit monthly reports to the CBOE detailing the desk's handling of the firm's error account and certain employee account transactions.
More turmoil could lie ahead for Bridge. A board meeting, scheduled for February 23, is expected to be followed by a meeting of Bridge shareholders--the first in years, according to sources.
Sources close to Bridge suggest a proxy battle may break out, as Lebens--himself a major Bridge shareholder--seeks to retain control over the company he founded and effectively ran from 1974 until last fall, when the trading activities became public.
On the eve of the publication of details of the unauthorized trading activities, the board voted 13-7 to unseat Lebens as chief executive, naming then-president and chief operating officer Charles Dill to the post.
Stephen Morse gives a presentation on how traders are using information created via Twitter to derive trading insights.Subscribe to Weekly Wrap emails