NASDAQ PHLX LLCLETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 2012031480720
TO:

Nasdaq PHLX LLC
c/o Department of Enforcement
Financial Industry Regulatory Authority ("FINRA")

RE;

Simon Librati, Respondent
Former Associated Person(CRD No. 4155156)

Pursuant to Rule 9216 of the Nasdaq PHLX LLC ("PHLX") Code of Procedure, Respondent
Simon Librati ("Librati") submits this Letter of Acceptance, Waiver and Consent ("AWC") forthe purpose of proposing a settlement of the alleged rule violations described below. This AWC
is submitted on the condition that, if accepted, PHLX will not bring any future actions against
Librati alleging violations based on the same factual findings described herein.

I.
ACCEPTANCE AND CONSENTA.

Librati hereby accepts and consents, without admitting or denying the findings, arid
solely for the purposes of this proceeding and any other proceeding brought by or on
behalf of the PHLX, or to which the PHLX is a party, prior to a hearing and without an
adjudication of any issue of law or fact, to the entry of the following findings by the
PHLX:

BACKGROUND
Respondent Simon Librati entered the securities industry in 1993. In approximately early
2008, with a business partner, Librati formed "Fund A," a foreign, unregisteredproprietary trading firm that operated as a trading fund. On or about August 25, 2011,
Librati and his partner bought SMF Trading, Inc., a member of FINRA since August
2005 and a former member of several exchanges.' They brought on additional partners
and added additional entities to their partnership. Collectively, the partners madedecisions about all of the entities, including the securities business of Fund A and SMF
Trading. On May 14, 2013, SMF Trading began doing business as World-Xecution
Strategies ("World-Xecution").
In May 2013, Librati and his original business partner formed BD No. 5, a broker-dealer
that was registered with the PHLX from July 31, 2014 to August 3, 2015, re-registered on
September 1, 2017, and remains a member organization. (BD Nos. 1-4 are referenced
within.) Also in 2013, they formed "Fund B," another foreign, unregistered proprietary
trading firm that operated as a trading fund, and they brought on additional partners.
Collectively, the partners made decisions about all of the entities, including the securities
SKIL' Frad mg is the ..object orser•nrate settlement agreements with other self-regulatory organizatimb.

STAR No 20 !20314b07 (includes 20130354712, 20140423738, and 20160508555) 1EK and KA)business of Fund A, Fund B, World-Xecution, and BD No. 5. Librati was an associatedperson of BD No. 5 under PHLX rules until August 3, 2015, when BD No. 5 temporarily
ceased being a member organization. By letter dated May 24, 2016, Librati was notifiedof this investigation.

RELEVANT PRIOR DISCIPLINARY HISTORY
Librati has no disciplinary history.

SUMMARYIn Matter Nos. 20120314807, 20130354712, 20140423738, and 20160508555, the staff
in the Quality of Markets Section of FINRA's Department of Market Regulation
reviewed Librati's activity with respect to partially owning and controlling two
unregistered proprietary trading firms, Fund A and Fund B, which engaged in trading
activity that included market manipulation and fraud, including layering and spoofing, on
multiple markets, including PHLX. The staff also reviewed Librati's activity with respect
to partially owning and controlling World-Xecution and BD No. 5, which introduced or
executed Fund A's and Fund B's trades.
Pursuant to Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
Librati is liable as a controlling person for Fund A's and Fund B's violations of Sections
9(a)(2) and 10(b) of the Exchange Act, and Rule 10b-5(a) and (c) thereunder. In addition,
Librati violated PHLX Rule 707 as a controlling person of two proprietary trading firmsthat engaged in trading activity that included market manipulation and fraud, particularly
layering and spoofing, from July 31, 2014 to August 3, 2015 through a broker-dealer ofwhich he also was a controlling person.

FACTS AND VIOLATIVE CONDUCT
Layering and SpoofingI.

"Layering" is a form of market manipulation that typically includes placement ofmultiple limit orders on one side of the market at various price levels that are intended tocreate the appearance of a change in the levels of supply and demand. In some instances,layering involves placing multiple limit orders at the same or varying prices acrossmultiple exchanges or other trading venues. An order is then executed on the opposite
side oldie market and most, if not all, of the multiple limit orders are immediately
cancelled. The purpose of the multiple orders that are subsequently cancelled is to induce,or trick, other market participants to enter orders due to the appearance of interest createdby the orders such that the trader is able to receive a more favorable execution on the
opposite side of the market.

2.

Similar to layering, "spoofing" is a form of manipulative trading which involves a market
participant placing non-bona fide orders, generally inside the existing national best bid
and offer ("NBBO"), with the intention of briefly triggering some type of response fromanother market participant, followed by cancellation of the non-bona fide order, and theentry of an order on the other side of the market.

7Literati and His Business Partner Form Fund A
3.

In 2008, Librati, a Canadian citizen and resident with a business office in Canada, and his
partner formed Fund A under the laws of the Cayman Islands as a proprietary trading
firm. In early 2012, they brought on additional partners, after which Librati owned 38
percent of Fund A. Fund A entered into contracts with trading managers that managed
groups of traders, resulting in Fund A having thousands of overseas, unregistered day
traders in foreign countries to trade for Fund A's account. Librati personally did not tradefor Fund A.

4.

Librati and his partners hired unregistered risk managers in Canada to identify potential
groups of traders for Fund A. Based upon recommendations and information provided by
the risk managers about proposed trading groups' strategies, buying power requirements,and history of success, they decided which groups of traders to accept. Fund A enteredinto negotiated agreements with each trading group pursuant to which the trading group
kept approximately 85 to 90 percent of the trading profits, and Fund A retained
approximately 10 to 15 percent. Generally, neither the trading managers nor the traders
contributed any capital, and they did not absorb trading losses. Librati and his partners, as
Fund A's owners, horc the trading risks. Fund A paid each group's share to the trading
manager, and the manager was responsible for paying each group's traders.

5.

Librati and his original partner allocated money for Fund A to trade through each of the
trading groups. They imposed strict credit limits and controls on the type and volume ofactivity and financial exposure of the trading. The individual traders and groups of tradersfor Fund A were fungible and could be terminated at any time by Librati and his partners
at will, and each trading group could terminate its individual traders. Fund A retained theunpaid trading profits of any terminated traders dismissed for questionable activities.
Fund A Engages in Layering and Spooling in the United States

6.

In 2008, Fund A became a customer of BD No. 1, a U.S. registered broker-dealer. BD
No. I provided Fund A with direct market access to a number of exchanges in the UnitedStates, including PI ILX. Fund A's traders utilized third-party order management systems
and entered orders directly on U.S. markets using BD No. l's market participant
identifier ("MPID").

7.

Through the access provided by BD No. I, Fund A engaged in trading activity that
included a pattern and practice of layering and other manipulative trading. Between 2008
and 2013, Fund A's trading triggered hundreds of thousands of regulatory alerts at
FINRA and multiple exchanges for layering and other manipulative trading.

8.

FINRA and the Securities and Exchange Commission ("SEC") directed regulatoryinquiries to 130 No. I about Fund A's activity. BD No. I also received reports from theexchanges showing exceptions that evidenced potentially violative trading activity. BD
No. I in turn forwarded some of the reports to Fund A. For example, on January 7, 2010,
BD No. I sent an email to Librati and a Fund A employee with attachments showingpotential wash trades on three exchanges, with the message, "Please provide written
confirmation of your review and if wash trades have been detected, what action has beentaken to prevent future occurrences." BD No. I routinely sent identical emails to Librati
and others at Fund A about other instances throughout the year.
9.

Fund A and Fund B cleared their trades through registered broker-dealers. On November
3, 2010, the SEC adopted its Market Access Rule, Exchange Act Rule 15c3-5, requiring
broker-dealers providing market access to have adequate risk management andsupervisory systems to surveil for and prevent layering and other manipulative trading
activity, among other things.

10. In approximately July 2011, after the SEC had expressed concerns to BD No. 1 about
Fund A's trading, BD No. 1 discussed with Librati and his partner the idea of having theirown broker-dealer introduce Fund A's orders to BD No. 1.
Librati and his Partner Purchase World-Xecution
I I. In August 2011, Librati and his partner purchased World-Xecution, a broker-dealer
already registered with FINRA and multiple other exchanges. Librati was not licensed
but was an associated person based on partial ownership and control. They installed otherlicensed securities professionals as officers and executives of World-Xecution. Fund A
continued trading directly with BD No. 1 through December 2011. In January 2012,
World-Xecution began introducing Fund A's order flow to BD No. I, which continued
Fund A's access to multiple securities exchanges, and Fund A's traders continued toengage in manipulative layering.
12. By mid-2012, Librati and his original partner each owned 38 percent of World-Xecution
and its affiliates, including Fund A, and the minority partners owned 24 percent. The
minority partners were licensed securities professionals.
Fund A Continues Layering and Spoofing through World-Xecution
13. From January 2012 through January 2013, World-Xecution introduced Fund A's order
flow to BD No. I, and Fund A traders continued manipulative layering, triggering morethan 200,000 surveillance alerts at FINRA.
14. Librati and World-Xecution were on notice of certain manipulative activity by Fund A
through regulatory inquiries sent to BD No. I. BD No. I, in turn, sent inquiries to Fund A
about the manipulative trading. For example, on March 29, 2012, BD No. I sent an email
to Librati and others at Fund A stating, in part, "[An exchange] has detected potential
layering and other manipulative activity in these symbols through [BD No. I's MPID] intoday's market."
15. In the middle of receiving these inquiries, in July 2012, Librati and his partner exchanged
cmails containing a Wall Street Journal article about disciplinary action taken against
another firm for layering.

416. Librati and his partner frequently communicated about regulatory issues, including inAugust 2012, when Librati and his partner exchanged emails about Fund A operating in"grey areas" and regulators not liking Fund A's business.
17. Also, F1NRA began sending regulatory inquiries directly to World-Xecution, of which
Librati was a controlling person, in its capacity as the introducing broker for Fund A.
18. On September 5, 2012, an employee at BD No. 1 sent an email to Librati and others at
Fund A that stated the following:
Simon, please be aware that we receive frequent contacts fromexchanges, and one exchange has told me that they don't see thistype of pattern from ANY other MP1D across the market. Market
makers arc complaining to the exchanges. This pattern of enteringorders which move the NBBO, enticing market makers into theseprices, entering a large order on the opposite side of the market
which executes, then cancelling the orders that moved the NBBO,
is raising a lot of red flags.
19. Five weeks later, by letter dated October 10, 2012, BD No. I notified World-Xecution,
including a copy directly to Librati, that it was terminating BD No. l's relationship withWorld-Xecution in 30 days. BD No. 1 extended the deadline, and Fund A continued
trading through BD No. 1 through January 2013.
20. After BD No. I informed World-Xecution that it was terminating the relationship, Librati
and his partners began establishing relationships on behalf of World-Xecution and Fund
A with BD No. 2, an unaffiliated registered broker-dealer, in November 2012, and BD
No. 3, another unaffiliated registered broker-dealer, in December 2012.
21. Fund A's traders engaged in layering and spoofing from approximately November 2012
through May 2013 through BD No. 2.
22. Fund A's traders engaged in layering and spoofing from approximately January 2013
through October 2013 through BD No. 3.
Fund B
23. Back in March 2013, Librati and his partners had formed Fund B, a second unregistered,foreign proprietary firm that also operated as a trading fund, with the same owners as
Fund A (38 percent Librati, 38 percent his partner, and 24 percent the other partners).
They created it, in part, because they thought it would be a good vehicle for raising
capital. Fund A became Fund B's "investment agent," and in approximately October
2013, an account was opened for Fund B at BD No. 4. Fund A's traders now traded forFund B's account. Librati personally did not trade for Fund B.
24. From October 2013 through July 2014, Fund A's traders continued layer ing and spoofingin Fund 13's account at BD No. 4.

5

25. BD No. 4's relationship with World-Xecution terminated, effective July 10, 2014.
Librati and His Partners Form BD No. 5
26. Librati and his partners formed BD No. 5 on May 7, 2013. Librati remained unlicensed
but was an associated person bascd on partial ownership and control. As with WorldXecution, they installed licensed securities professionals as officers and executives of BD
No. 5. Librati and his partners capitalized BD No. 5 with millions of dollars. Librati andhis partner each owned a 38-percent stake in BD No. 5, and the other partners
collectively owned a 24-percent stake in BD No. 5. As time went on, they brought on
additional partners, and Librati sold his remaining 33 percent ownership in August 2016.
27. BD No. 5 provided market access to Fund B beginning in July 2014. BD No. 5 also
introduced Fund B's order flow to BD No. 2, a registered broker-dealer, between July
2014 and July 2015.13D No. 5 has introduced Fund B's order flow to BD No. 6, aregistered broker-dealer, since approximately July 2015.
28. Librati was indirectly involved in the development of a trade surveillance system at BD
No. 5.
29. Fund A and Fund B generated substantial revenues for Librati and his partners, and a
portion of these revenues resulted from transactions that involved layering and spoofing,including transactions that were not detected by the surveillance system at BD No. 5.
30. As noted above, Fund A and Fund B profited by retaining between 10 and 15 percent of
net revenues from their trading, including the portion from layering, and Librati and his
partners profited as owners of Fund A and Fund B. Although the total amount has notbeen quantified, Fund A and Fund B kept any Unpaid profits from traders who had been
terminated due to suspicious trading.
31.

World-Xecution also profited from transactions executed by Fund A, including those
involving layering, through commissions, fees, and rebates. Librati and his partners also
profited through ownership of BD No. 5 that introduced and executed Fund A's and Fund
B's trades.

32. As set forth above, when relationships ended between unaffiliated broker-dealers andFund A or World-Xecution, Librati and his partners established relationships with otherregistered broker-dealers and created their own registered broker-dealer, BD No. 5, toensure continued market access for Fund A and Fund B.
33. Librati directed that certain steps he taken to address Fund A's and Fund B's layering, but
his efforts focused on individual instances of layering by individual traders. Librati
directed that individual traders be terminated and substantially shrank the business
transacted, but he never otherwise changed Fund A's or Fund B's business model or took
action to prevent their manipulative activity. Fund A and Fund B kept the unpaid profitsthat the terminated trader's had generated. Librati directly or indirectly controlled Fund A
and Fund B while fund traders engaged in layering, and layering continued through Fund
A and Fund B in varying degrees for years.

634. At least three registered broker-dealers who executed Fund A's order flow were charged
or settled disciplinary actions in connection with Fund A's trading. In June 2014, the SEC
charged BD No. I with numerous violations, including failing to reasonably supervise toprevent or detect pre-arranged trading, wash trades, and layering, a portion of which
consisted of Fund A's trades. In August 2014, FINRA filed a complaint against BD No. 1
for violating its supervisory obligations, and Fund A's trading constituted most of the
trading that BD No. I had failed to supervise. The same day FINRA's complaint was
filed, BD No. 5's chief compliance officer circulated a copy of the complaint to Librati.
Later, in 2014 and 2015, the SEC and multiple self-regulatory organizations collectively
fined BD No. I over $4.2 million for failing to supervise its direct market accessbusiness, including in part for failing to prevent or detect Fund A's layering.
35. In 2015, FINRA and multiple exchanges censured and imposed a fine of $1 million
against BD No. 2 for inadequate supervision of layering, among other things, and someof the trading was attributable to Fund A.
36. In April 2018, FINRA and multiple exchanges censured and imposed a fine of$1,575,000 against Bll No. 3 for violations of SEC Rule 15c3-5 and inadequate
supervision of layering, among other things, and some of the conduct was attributable toFund A.
Summary of Violations
37. By reason of the conduct described above, Fund A and Fund B directly or indirectly,
acting intentionally, knowingly or recklessly, by the use of the mails or means or
instrumentalities of interstate commerce, or a facility of a national securities exchange,
effected, alone or with one or more other persons, a series of transactions in securities
creating actual or apparent active trading in such securities, or raising or depressing theprice of such securities, for the purpose of inducing the purchase or sale of such securities
by others.
38. Fund A and Fund B, directly or indirectly, acting intentionally, knowingly or recklessly,
in connection with the purchase or sale of securities, by use of the means or
instrumentalities of interstate commerce or the facilities of a national securities exchangeor the mail: (a) employed devices, schemes, or artifices to defraud; and (b) engaged inacts, practices, or courses of business which operated or would have operated as fraud or
deceit upon other persons.
39. As a result of the foregoing conduct, Fund A and Fund B violated Exchange Act Sections
9(a)(2) and 10(b), and Rule 106-5(a) and (c) thereunder.
40. By reason of the conduct described above, Librati directly or indirectly controlled Fund A
and Fund B. Accordingly, pursuant to Section 20(a) of the Exchange Act, Librati is liable
as a controlling person for Fund A's and Fund B's violations of Sections 9(a)(2) and10(b) of the Exchange Act, and Rule 10b-5(a) and (c) thereunder. Librati's conduct incontrolling persons that violated Sections 9(a)(2) and 10(b) of the Exchange Act and Rule106-5(a) and (c) thereunder was willful.

41. Pursuant to PHLX Rule 707, Librati was required to observe high standards ofcommercial honor and just and equitable principles of trade. As set forth above, Fund A
and Fund B knowingly and recklessly engaged in manipulative trading in violation of
Exchange Act Sections 9(a)(2) and 10(b), and Rule IOb-5(a) and (c) thereunder. In
addition, Fund A and Fund B, in connection with the offer or sale of securities, directly or
indirectly, by the use of any means or instruments of transportation or communication ininterstate commerce or by use of the mails, engaged in a transaction, practice, or courseof business which operated or would have operated as a fraud or deceit upon thepurchaser, thereby violating Section 17(a)(3) of the Securities Act of 1933. Bycontrolling firms that violated the Exchange Act and the Sec►rrities Act, Librati violated
PHLX Rule 707.
B.

Respondent consents to a plenary suspension of five years.
The sanctions imposed herein shall be effective on a date set by FINRA staff.
Respondent understands that if he is barred or suspended from associating with any
PHLX member organization, he becomes subject to a statutory disqualification as thatterm is defined in Section 3(a)(39) of the Securities Exchange Act of 1934, as amended.
Accordingly, Respondent may not be associated with any PHLX member organization inany capacity, including clerical or ministerial functions, during the period of thesuspension. (See PHLX Rule 8310 and 1M-8310-1.)

11.
WAIVER 01? PROCEDURAL RIGHTS
Respondent specifically and voluntarily waives the following rights granted under the PHLX's
Code of Procedure:A.

To have a Formal Complaint issued specifying the allegations against him;
To be notified of the Formal Complaint and have the opportunity to answer the
allegations in writing;
To defend against the allegations in a disciplinary hearing before a hearing panel,to have a written record of the hearing made and to have a written decision issued;andD.

To appeal any such decision to the PHLX Review Council and then to the U.S.
Securities and Exchange Commission and a U.S. Court of Appeals.

Further, Respondent specifically and voluntarily waives any right to claim bias or prejudgmentof the Chief Regulatory Officer, the PHLX Review Council, or any member of the P111.X
Review Council, in connection with such person's or body's participation in discussions
regarding the terms and conditions of this AWC, or other consideration of this A WC, including8

acceptance or rejection of this AWC.
Respondent further specifically and voluntarily waives any right to claim that a person violated
the ex parte prohibitions of Rule 9143 or the separation of functions prohibitions of Rule 9144,
in connection with such person's or body's participation hi discussions regarding the terms andconditions of this AWC, or other consideration of this AWC, including its acceptance orrejection.

9

OTHER MATTERS
Respondent understands that:A.

Submission of this AWC is voluntary and will not resolve this matter unless anduntil it has been reviewed and accepted by FINRA's Department of Enforcement
and the PHLX Review Council, the Review Subcommittee, or the Office ofDisciplinary Affairs ("ODA"), pursuant to PHLX Rule 9216;

B.

If this AWC is not accepted, its submission will not be used as evidence to prove
any of the allegations against Respondent; andC

Ifaccepted:

D.

I.

This AWC will become part of Respondent's permanent disciplinary
record and may be considered in any future actions brought by 1311LX or
any other regulator against him;

2.

PHLX may release this AWC or make a public announcement concerning
this agreement and the subject matter thereof in accordance with PHLX
Rule 8310 and IM-8310-3; and3

Respondent may not take any action or make or permit to be made any
public statement, including in regulatory filings or otherwise, denying,directly or indirectly, any finding in this AWC or create the impressionthat the AWC is without factual basis. Respondent may not take any
position in any proceeding brought by or on behalf of PHLX, or to which
PHLX is a party, that is inconsistent with any part of this AWC. Nothing
in this provision affects Respondent's right to take legal or factual
positions in litigation or other legal proceedings in which PHLX is not a
party.

Respondent may attach a Corrective Action Statement to this AWC that is astatement of demonstrable corrective steps taken to prevent future misconduct.
Respondent understands that he may not deny the charges or make any statementthat is inconsistent with the AWC in this Statement. This Statement does notconstitute factual or legal findings by PHLX, nor does it reflect the views of
PIILX or its staff.

10

Icertify that Ihave read and understand all of the provisions of this AWC and have been given afull opportunity to ask questions about it; that Ihave agreed to the AWC's provisions
voluntarily; and that no offer, threat, inducement, or promise of any kind, other than the terms set
forth herein and the prospect of avoiding the issuance of a Complaint, has been made to induce
me to submit it.
04 121 1261
Date

SinLon Larati
Respondent

Reviewed by:

Stephen J. Crimmins
Heather B. Middleton
Murphy & McGonigle
1001 G Street, N.W.
Seventh Floor
Washington, D.C. 20001(202) 661-703 I
Counsel for Respondent

Accepted by FINRA:
elotoce., .
Date

„WV:
W. Kwame Anthony, Sen. Counsel
Elyse D. Kovar, Senior Counsel
Department of Enforcement
Signed on behalf of the PHLX, by delegatedauthority from the Director oroDA

II