SEC reaches partial settlement with quant analyst behind $8.5M front-running scheme
The United States Securities and Exchange Commission (SEC) and Sergei Polevikov, a quant analyst behind an $8.5 million front-running scheme, have reached a partial settlement. This becomes clear from a proposed consent judgment submitted by the parties on February 8, 2022 at the New York Southern District Court.
The parties have earlier confirmed that they are engaged in settlement discussions.
The proposed Judgment would permanently enjoin Polevikov from violating Section 10(b) of the Exchange Act of 1934 [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b- 5], Section 17(a) of the Securities Act of 1933 [15 U.S.C. § 77q(a)], and Section 17(j) of the Investment Company Act of 1940 [15 U.S.C. § 80a-17] and Rules 17j-1(b)(1) and (3) and 17j-1(d) [17 C.F.R. §§ 270.17j-1(b)(1) and (3) and 270.17j-1(d)] thereunder.
It would leave for the Court to decide, upon motion by the Commission, any monetary sanctions to be assessed against Polevikov, including disgorgement, prejudgment interest, and civil penalty.
Polevikov has consented to entry of the proposed Judgment, and the motion is therefore unopposed. The SEC says that that the proposed Judgment is fair, reasonable, adequate, and in the public interest.
According to the SEC’s complaint, Polevikov worked as a quantitative analyst at two prominent asset management firms. From at least January 2014 through October 2019, Polevikov had access to real-time, non-public information about the size and timing of his employers’ securities orders and trades, and used that information to secretly trade on, and ahead of, his employers’ trades.
As alleged, Polevikov, on nearly 3,000 occasions, bought or sold a stock on the same side of the market as his employers before his employers executed trades in the same stock for their fund clients. Polevikov typically would close his positions the same day as he opened them, capitalizing on the price movement caused by his employers’ large trades.
The SEC alleges that Polevikov concealed his fraudulent scheme by executing the trades in the account of his wife, Maryna Arystava, who uses a different last name.
The investigation originated from the SEC’s Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns, such as improbably successful trading across different securities over time. These capabilities enabled the SEC to spot Polevikov’s trading activities which consistently generated small profits that added up to a total of at least $8.5 million over the course of the scheme.