Neovest Fined by SEC for Failure to Register as Broker-Dealer

Neovest, a provider of an order and execution management system (OEMS) that allows electronic trading, has agreed to pay a $2.75 million penalty to the U.S Securities and Exchange Commission (SEC) for failing to register as a broker-dealer in violation of federal securities laws.

As a subsidiary of JPMorgan Chase & Co., Neovest runs an OEMS that allows customers to route stock and option orders to more than 360 customer-selected destination brokers for execution. According to the SEC's order, Neovest engaged in this activity through its licensed broker-dealer, Neovest Trading Inc., prior to being bought by JPMorgan Chase.

Although Neovest had its broker-dealer registration revoked after being acquired, SEC found out that it continued to operate the OEMS as an unregistered broker-dealer by, among other things, participating in the order-taking and order-routing process and soliciting customers and destination brokers through the firm's website and direct outreach at industry conferences and trade shows. By entering into agreements with the destination brokers, Neovest played a role in deciding the routing alternatives available to its consumers.

Neovest continued to collect transaction-based remuneration in exchange for its OEMS services, according to SEC, by having payments from destination brokers redirected to J.P. Morgan Securities LLC, a registered broker-dealer, which then transferred the proceeds to Neovest. The company's failure to register as a broker-dealer also robbed its consumers of safeguards associated with registration, such as SEC inspections and examinations, as well as the necessity to develop rules and processes to secure customer information, according to the SEC ruling.

Neovest copied a database containing customer authentication information, including user names and passwords, to one of its most active customers during the time it failed to register, and failed to supervise the customer's use of the database.