DOJ pushes for prison sentence for quant analyst behind $8.5M front-running scheme
The Department of Justice (DOJ) is pushing for a prison sentence for Sergei Polevikov, a quant analyst behind an $8.5 million front-running scheme.
On April 5, 2022, the Government submitted a sentencing memorandum to the New York Southern District Court in advance of the sentencing of Sergei Polevikov scheduled for April 12, 2022.
Polevikov is a sophisticated financial professional who obtained and used material, non-public information (MNPI) in order to make millions of dollars of illegal profits through insider trading. Over a period of several years, Polevikov well understood that he was stealing MNPI from his employer, an asset management firm headquartered in New York, and placed thousands of illegal front-running trades based on confidential information about trades contemplated by the Employer Firm.
Polevikov also took substantial steps to conceal his criminal activity, including by placing trades in an account in the name of his wife, and by concealing the existence of the Subject Account from the Employer Firm.
Beginning in at least 2014, Polevikov engaged in a front running scheme whereby he committed insider trading through the misappropriation of confidential, material, non-public information about the securities trade orders of the Employer Firm on behalf of its clients. The defendant misappropriated this information in order to engage directly and indirectly in short term personal securities trading designed to profit by executing trades that took advantage of relatively small price movements in a company’s stock that followed from large securities orders executed by the Employer Firm on behalf of its clients.
Throughout his participation in the front running scheme, Polevikov was required to disclose to the Employer Firm any personal trading accounts, any ownership of securities, and to seek preapproval for any proposed personal securities trades. Polevikov was aware of these requirements and sought pre-approval for more than 700 personal securities trades that were not based on MNPI and that he planned to execute in accounts bearing his own name. In total, between 2014 and 2019, Polevikov executed more than 2,800 trades as part of the Front Running Scheme, and his participation in scheme yielded more than $8.5 million in illicit profits.
The defendant has no known criminal history. Accordingly, the recommended USSG range is 57 to 71 months’ imprisonment. The parties have also agreed that forfeiture is warranted in the amount of $8,564,977 based on the defendant’s gains.
The Probation Office has recommended a sentence of 48 months’ imprisonment. In support of its recommendation, the Probation Office relies on “the high amount of loss and profit involved in this case that went on for several years” and finds that while the mitigating circumstances cited by the defendant are unfortunate, they do not warrant a more significant downward variance.
According to the Government, the Court should impose a substantial sentence of imprisonment, but a sentence between 57 and 71 months’ imprisonment, that is, within the agreed-upon range pursuant to the United States Sentencing Guidelines (USSG), would be greater than necessary under the circumstances of this case.
In a parallel civil case brought by the Securities and Exchange Commission (SEC) against Polevikov a partial settlement has been reached.