FINRA

Lebental was named a respondent in a FINRA complaint alleging that he willfully violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5 (a) and (c) and violated FINRA Rule 2020 by employing his fraudulent and deceptive spoofing scheme in 523 instances to create the materially false and misleading appearance of market activity and supply or demand, and thereby induce other market participants to execute against his bona fide order. The complaint alleges that this allowed Lebental to buy or sell U.S. Treasury securities or futures at more favorable prices or quantities than would have been possible at that time had he not created a false and misleading appearance of market activity and supply or demand. The complaint also alleges that Lebental, in connection with his trading scheme involving the U.S. Treasury securities and futures, acted in contravention of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (Securities Act). Further, Lebental used interstate electronic messages to deliver orders to nationwide SEC registered alternative trading systems and a national futures exchange. The complaint further alleges that Lebental placed non-bona fide securities orders into at least one trading venue, causing those venues to publish or circulate non-bona fide quotations. Lebental did not have reasonable cause to believe that the quotations resulting from his orders in a 30-year U.S. Treasury Bond were bona fide, were not fictitious and were not published or circulated or caused to be published or circulated for any fraudulent, deceptive, or manipulative purpose. In addition, the complaint alleges that by placing and immediately cancelling large, fully displayed non-bona fide orders in the 30-year Bond, Lebental injected false information into the marketplace, which induced executions of his orders on the opposite side of the market in the 30-year Bond or a correlated Ultra Treasury Bond future, and thereby acted in bad faith and unethically. The non-bona fide order created a false appearance of market depth and activity so that Lebental's bona fide order would receive favorable executions at better prices. Specifically, market participants on the other side of the spread from his bona fide order responded by crossing the spread and executing at his price, or if the spread had moved as a result, Lebental sometimes got an even better price.

Decision & Order of Offer of Settlement

Bar (Permanent)

All capacities

Indefinite

3/27/2024

Without admitting or denying the allegations, Lebental consented to the sanction and to the entry of findings that he participated in a fraudulent or deceptive practice or scheme by engaging in instances of "spoofing," a type of fraudulent trading that involves the use of non-bona fide orders to induce executions of bona fide orders entered on the opposite side of the market in the same security or a correlated product. The findings stated that Lebental engaged in spoofing while trading as a market maker in U.S. Treasury Bonds and supervising the U.S. Treasury desk of his member firm. In each instance, Lebental entered a large, fully displayed non-bona fide order to purchase or sell the 30-year U.S. Treasury Bond. At the time he entered the non-bona fide order, Lebental already had a bona fide order on the opposite side of the market in either the 30-year U.S. Treasury Bond or the correlated Ultra Treasury Bond future. The non-bona fide order created a false appearance of market depth and activity so that Lebental's bona fide order would receive favorable executions at better prices. Specifically, market participants on the other side of the spread from his bona fide order responded by crossing the spread and executing at his price, or if the spread had moved as a result, Lebental sometimes got an even better price. In each of the instances, after receiving executions of his bona fide order, Lebental cancelled the non-bona fide order within three seconds of entry. In a majority of these instances, Lebental cancelled his non-bona fide order within one second of entry. The findings also stated that Lebental caused the publication of non-bona fide transactions and quotations by placing the non-bona fide securities orders into at least one of the three trading venues, causing those venues to publish or circulate non-bona fide quotations. The findings also included that by placing and immediately cancelling large, fully displayed non-bona fide orders in the 30-year U.S. Treasury Bond, Lebental injected false information into the marketplace, which induced executions of his orders on the opposite side of the market in the 30-year U.S. Treasury Bond or correlated Ultra Treasury Bond future, and thereby acted in bad faith and unethically.