SEC Charges Mizuho Securities for Failure to Safeguard Customer Information

On July 23, 2018 The Securities and Exchange Commission charged Mizuho Securities USA LLC for its failure to safeguard information pertaining to stock buybacks by its issuer customers.  Mizuho failed to maintain and enforce policies and procedures aimed at preventing the misuse of material nonpublic information, including maintaining effective information barriers between different trading desks and requiring employees to keep client information confidential.  Mizuho agreed to settle the charges and will pay a $1.25 million penalty.

According to the SEC’s order, during a two-year period, Mizuho traders regularly disclosed material nonpublic customer buyback information to other traders and Mizuho’s hedge fund clients.  That information included the identity of the party placing the order, the order size, limit price, and indications that the orders were buyback orders. Such information was routinely communicated across trading desks, notwithstanding that during the relevant period Mizuho executed over 99.8 percent of all buyback orders by using algorithms, rather than through trader-negotiated open market trades.

“Confidential information concerning issuer stock buybacks can be material to institutional investors, particularly when such trading comprises a significant portion of the daily trading volume in the stock being repurchased,” said Antonia Chion, Associate Director of the SEC Division of Enforcement.  “Broker-dealers must be attentive to their responsibilities to maintain and enforce policies and procedures to prevent the misuse of such information.”

The SEC’s order finds that Mizuho willfully violated Section 15(g) of the Securities Exchange Act of 1934.  Without admitting or denying the SEC’s findings, Mizuho consented to the order imposing a $1.25 million penalty, a censure, and ordering it to cease and desist from committing or causing any future violations.

The SEC’s investigation was conducted by Drew M. Dorman, Greg Hillson, and Kevin Gershfeld.  The case was supervised by Yuri B. Zelinsky and Ms. Chion.  Assisting in the investigation were Chyhe Becker and Cathy Niden in the SEC’s Division of Economic and Risk Analysis and Sarah Heaton Concannon in the Enforcement Division’s Trial Unit.

https://www.sec.gov/news/press-release/2018-140

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