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1、8HeartofDarknessOnOctober24,2011,whileworkingafewtradesforThemisclients,SalnoticedanewsheadlinescrollacrosshisBloombergter-minal:“AlternativeTradingSystemAgreestoSettleChargesThatItFailedtoDiscloseTradingbyanAffiliate.”“HeyJoe,checkthisout,”Salsaid.“TheSECischarginganATSwithwrong-doing...whoa,it’s
2、thePipe!”“What?”Joeasked.“You’rejoking,right?”WewenttotheSECwebsitetogetthedetails.Pipeline,adarkpoolthatmostofWallStreetusedtotradelargeorders,wasfinedforengaginginproprietarytradinginitsagencycrossingnetwork,unbe-knowntoitsclients.TheSEChadbeenlookingintoallegationsofmisconductforaperiodoftime,m
3、ostlikelyduetoawhistle-blowingtipcomingfromsomeoneatPipeline.Asettlementwasreached,withoutadmittingordenyingtheSEC’sallegations.Pipelineagreedtopaya$1millionfine.ItsCEO,FredFederspiel,anditschairmanandformerCEO,AlBerkeley,whowasaformerpresidentandvicechairmanofNASDAQ,alsoagreedtopay$100,000each,wi
4、thoutadmittingordenyinganywrong-doing.AccordingtotheSEC,Pipelinewasbilledasacrossingnetworkthatmatchedcustomerbuysandsellsanonymously.Yetbehindthescenes,atradingfirmthatitownedwasactuallytradingagainstinves-torordersenteredintothesystem.TheSEC’sadministrativeorderhighlightedthefollowing:1125126Bro
5、kenMarkets•Pipelineactivelyadvertisedthatithadnoproptrading,thetrad-ingopportunitiesinitsdarkpoolwere“natural,”itwouldneverrevealcustomerorderinformation,anditdeniedarbitrageursandHFTfirmsanyinformationaboutorderflow.•Inreality,Pipelineownedandcompletelyfundedatradingfirm—Milstream—thatitsetupafew
6、monthsbeforeitspublicATSlaunchinSeptember2004.Milstreamemployedhighfre-quencytacticsandtradedinthePipelinedarkpool.•Milstreamhadtwomajorpurposes.One,enterorderflowsothatPipelinecouldshowsubscribersthattherewas“natural”activityinitsdarkpooltomakethemconfidentinPipeline’sliquidity.Two,makemoney.Mils
7、treamwasontheothersideofmorethan90%ofPipelinetrades.•MilstreamwasprovidedinformationaboutthecustomerordersinPipelineandencouragedto“pre-position”andthensellbacktotheinvestorsinthepoolataninferiorprice.Ifamutualfu
