UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

ADMINISTRATIVE PROCEEDING

File No. 3-16017

____________________________________

:

In the Matter of :

:

LINKBROKERS DERIVATIVES LLC, :

:

Respondent. :

___________________________________ :

PLAN OF DISTRIBUTION

1. Purpose and Background. This plan of distribution (“Plan”) has been developed 

pursuant to Rule 1101 of the United States Securities and Exchange Commission’s 

(“Commission”) Rules on Fair Fund and Disgorgement Plans (“Rules”), 17 C.F.R. § 201.1101. 

The Plan proposes a distribution to certain injured brokerage customers at Linkbrokers 

Derivatives LLC (“Linkbrokers”), a broker-dealer registered with the Commission. The 

distribution fund currently consists of $14,005,000 in funds collected from Linkbrokers 

Derivatives LLC, Administrative Proceeding File No. 3-16017 and Aaron Nowak, Administrative 

Proceeding File No. 3-16999. Additional funds, if any, may be added to this fund from other 

enforcement actions arising from the same or substantially similar facts as those alleged in the 

Linkbrokers and Nowak proceedings. The Plan’s distribution will be coordinated with the 

distribution or distributions by the U.S. Attorney’s Office for the Southern District of New York 

in two related cases: United States v. Leszczynski, No. 12-cr-00923 (S.D.N.Y.) and United States 

v. Condron, No. 12-cr-00768 (S.D.N.Y). 

On August 14, 2014, the Commission issued a settled administrative proceeding order 

(“Order”)1 related to a fraudulent scheme at Linkbrokers. The scheme involved Linkbrokers 

unlawfully taking secret profits at the expense of certain customers, primarily large foreign 

institutions and foreign banks, in certain securities transactions. Specifically, the Commission’s

Order found that from at least 2005 through at least February 2009 (“Relevant Period”), in over 

36,000 customer transactions, certain employees of Linkbrokers working at the firm’s “Cash 

Desk” perpetrated a scheme by charging certain firm customers false prices. In these 

transactions, Linkbrokers embedded hidden profits in the form of price markups or markdowns 

into the execution price reported to the customer (“False Price Per Share”). Linkbrokers, through 

its Cash Desk personnel, executed customer orders purportedly charging small commissions—

 

1 Exchange Act Rel. No. 72846 (Aug. 14, 2014).
2

typically between a fraction of a penny and two pennies per share. According to the Order, the 

Cash Desk executed trades for Linkbrokers’ customers on a “riskless principal” basis meaning 

that the firm, after receiving a customer order to buy (or sell) a security, bought (or sold) the 

security for its own account from (or to) another person in a contemporaneous offsetting 

transaction and afterwards allocates the shares to the customer’s order. In the scheme, 

Linkbrokers’ False Price Per Share reported to its customers included an undisclosed profit 

(“Undisclosed Profit Per Share”) in the form of a price markup on a purchase (or a price 

markdown on a sale) added to (or subtracted from) the actual execution price (“Actual Execution 

Price Per Share”). According to the Order, the scheme was devious and difficult for 

Linkbrokers’ customers to detect, in part because the employees at Linkbrokers selectively 

engaged in the scheme when the volatility in the market was sufficient to conceal the fraud from 

the customer. 

The Commission found that Linkbrokers willfully violated Section 15(c)(1) of the 

Securities Exchange Act of 1934 (“Exchange Act”), which prohibits fraudulent conduct by a 

broker or dealer when effecting any transaction in, or inducing or attempting to induce the 

purchase or sale of, any security. The Commission ordered Linkbrokers to pay disgorgement of 

$14 million. 

On December 11, 2015, the Commission issued a settled administrative proceeding order 

against Aaron Nowak (“Nowak”), a registered representative associated with Linkbrokers during 

the Relevant Period (“Nowak Order”).

2

 Nowak worked as a sales trader and middle-office 

assistant entering orders he received from sales brokers on the Cash Desk. The Commission 

found that Nowak and other Linkbrokers personnel communicated false and/or misleading 

information to Linkbrokers customers in connection with the scheme. The Commission also 

found that Nowak willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933 

(“Securities Act”) which prohibits fraudulent conduct in the offer or sale of securities. The 

Nowak Order ordered Nowak to pay a civil penalty of $5,000 and created a Fair Fund for the 

penalty. The Nowak Order further ordered that the Fair Fund created for Nowak’s penalty be 

transferred to this administrative proceeding and combined with the funds collected in this 

matter. As a result, the Fair Fund in this proceeding has a total value $14,005,000. 

The Commission’s institution and settlement of the Linkbrokers and Nowak

administrative and cease-and-desist proceedings followed the filings of litigated civil and 

criminal actions in 2012 against other Linkbrokers personnel involved in the scheme. Those 

cases were largely resolved in 2014 and 2015. Specifically, in SEC v. Leszczynski, No. 12-cv07488 (S.D.N.Y.), a federal district court entered judgments on January 13, 2014 against Marek 

Leszczynski, Benjamin Chouchane, and Henry Condron, permanently enjoining them from 

violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 

10b-5 thereunder. Acknowledging the facts to which they have admitted as part of their guilty 

pleas in parallel criminal cases, Leszczynski, Chouchane, and Condron consented to the entry of 

these judgments. In addition, the federal district court in the Commission’s case ordered 

Leszczynski to disgorge $1,500,000, Chouchane to disgorge $2,007,408 plus prejudgment 

interest of $442,169, and Condron to disgorge $168,336 plus prejudgment interest of $39,339 

 

2

 Securities Act Rel. No. 9988 (Dec. 11, 2015).
3

with the amounts owed deemed satisfied based on orders of criminal restitution equal to or 

greater than the amounts ordered in the Commission’s action.3 On February 9, 2015, the court 

entered a default judgment permanently enjoining Gregory Reyftmann from violating Section 

17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and 

ordering him to pay disgorgement of $3,181,068, prejudgment interest of $989,072 and a civil 

penalty of $4,550,000. As of June 18, 2016, the clerk of court has recovered $225 in restitution 

from Marek Leszczynski and $81,996.12 in restitution from Henry Condron. According to the 

district court’s criminal restitution orders, restitution funds are to be distributed to certain named 

customers at Linkbrokers.

4

 

Under the Commission’s Plan, $14,005,000 collected in Linkbrokers and Nowak is 

available for distribution (“Distribution Fund”). The Distribution Fund is subject to the 

continuing jurisdiction and control of the Commission and has been deposited at the United 

States Department of Treasury’s Bureau of the Fiscal Service (“BFS”) for investment. The 

Commission intends to distribute the Distribution Fund, less any reserve for taxes, fees or other 

expenses of administering the Plan (“Net Distribution Fund”), to the owners of eligible customer 

accounts as described in paragraph 7 below. While the Commission currently anticipates that 

there will be one disbursement to the owners of eligible customer accounts, it is possible that 

there will be additional disbursements to the extent that the Commission recovers additional 

funds from cases arising from the same or substantially similar facts as those alleged in this 

proceeding.

2. Fund Administrator. On August 28, 2015, the Commission appointed Rust 

Consulting, Inc. as the “Fund Administrator” and set its bond at $14,000,000 as required by Rule 

1105(c) of the Rules.5

 The Fund Administrator will, among other things: oversee the 

administration of the Distribution Fund, confirm mailing information for the owners of eligible 

customer accounts, distribute money from the Distribution Fund in accordance with the Plan, 

resolve disputes, if any, from Linkbrokers’ customers, prepare a final accounting with assistance 

from the tax administrator, defined below, and provide the tax administrator with funds to pay 

the Distribution Fund’s tax liabilities, tax compliance fees and related costs.6 

3 Qualified Settlement Fund. The Distribution Fund constitutes a qualified 

settlement fund (“QSF”) under Section 468B(g) of the Internal Revenue Code, 26 U.S.C. 

§ 468B(g), and related regulations, 26 C.F.R. §§ 1.468B-1 through 1.468B-5. The QSF’s legal 

name will be “Linkbrokers Derivatives Distribution Fund.”

 

3

 Condron, Chouchane, and Leszczynski each pled guilty in parallel criminal actions arising from the same conduct 

on October 5, 2012, June 12, 2013, and August 20, 2013, respectively. See United States v. Condron, No. 12-cr00768 (S.D.N.Y.); United States v. Leszczynski, No. 12-cr-00923 (S.D.N.Y.). 4 Condron’s Order of Restitution at ¶ 1, United States v. Condron, No. 12-cr-768 (S.D.N.Y. Feb. 21, 2014) ECF No. 

20; Chouchane’s Order of Restitution at ¶ 1, United States v. Leszczynski, No. 12-cr-923 (S.D.N.Y. Dec. 5, 2013), 

ECF No. 34; Leszczynski’s Order of Restitution at ¶ 1, United States v. Leszczynski, No. 12-cr-923 (S.D.N.Y. Jan. 

30, 2014), ECF No. 41.

5

 Exchange Act Rel. No. 75784 (Aug. 28, 2015). 6

 Omnibus Order Directing the Appointment of Tax Administrator in Administrative Proceedings that Establish 

Distribution Funds, Exchange Act Rel. No. 68683 (Jan. 17, 2013).
4

4. Tax Administrator. The Commission has appointed Damasco & Associates LLP 

as the “Tax Administrator” of the Distribution Fund.7 The Fund Administrator will cooperate 

with the Tax Administrator and provide information, as necessary, to the Tax Administrator for 

the Distribution Fund’s tax compliance responsibilities. The Tax Administrator will be 

compensated for all reasonable costs and expenses in accordance with its 2013-2015 

Engagement Letter Agreement with the Commission. The Distribution Fund’s taxes will be paid 

out of the Distribution Fund.

5. Distribution Fund Banking Arrangements. The Fund Administrator will establish 

at a bank (“Bank”) acceptable to the Commission staff an escrow account (“Escrow Account”) in 

the name of Linkbrokers Derivatives Distribution Fund and bearing the Employer Identification 

Number of the QSF pursuant to an escrow agreement (“Escrow Agreement”) provided by the 

Commission staff. The Fund Administrator will also establish with the Bank a separate

distribution account acceptable to Commission staff for the purpose of making payments to the 

owners of eligible customer accounts. 

During the term of the Escrow Agreement, funds in the Escrow Account, if invested, will 

be invested and reinvested in short-term U.S. Treasury securities backed by the full faith and 

credit of the United States Government or an agency thereof, of a type and term necessary to 

meet the cash liquidity requirements for payments to eligible investors, tax obligations, and/or 

fees of the Tax Administrator and/or Fund Administrator, including investment or reinvestment 

in a bank account insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the 

guaranteed FDIC limit, or in money market mutual funds registered under the Investment 

Company Act of 1940 that invest 100% of their assets in direct obligations of the United States 

Government; provided, however, that the money market mutual funds’ investments in short term 

United States Treasury securities will not be made through repurchase agreements or other 

derivative products. The Fund Administrator will provide duplicate original bank and/or 

investment statements on any accounts established by the Fund Administrator to the Tax 

Administrator on a monthly basis and will assist the Tax Administrator in obtaining mid-cycle 

statements, as necessary.

All Distribution Fund checks presented for payment or electronic transfer will be subject 

to “positive pay” controls before being honored by the Bank. All checks issued to eligible 

investors will bear a stale date of ninety (90) days. Checks that are not negotiated within this

ninety (90) day period will be voided and the Bank will be instructed to stop payment on those 

checks, and the funds will remain assets of the Distribution Fund. If a check reissue has been 

requested before the stale date, such request will be honored and the reissued check will bear a 

stale date of thirty (30) days. Check reissue requests may not be honored after 120 days from the 

original check issuance date without consultation with and direction given to reissue by 

Commission staff. For any electronic payment, the exact amount necessary to make a payment

will be transferred from the Escrow Account directly to the payee’s bank account in accordance 

with written instruction provided to the Escrow Bank by the Fund Administrator.

 

7

 Exchange Act Rel. No. 73012 (Sept. 5, 2014).
5

6. No claims-made process. Linkbrokers did not provide its customers with 

information necessary to determine whether Linkbrokers was taking secret profits including the 

amount of such profits. As a result, the Commission is not distributing the Distribution Fund 

according to a claims-made process. Procedures in the Commission’s Rules for providing notice 

and for making and approving claims are not applicable.

7. Eligible Customer Accounts. Based on information obtained during the 

Commission’s investigation of this matter, the Commission staff has determined that 

Linkbrokers Cash Desk personnel effected transactions for 157 customer accounts during the 

Relevant Period. For an account to be eligible, the following three conditions must be met:

a. transactions in an account had to have been effected by one or more of the 

following 5 persons charged by the Commission (listed in alphabetical order): 

(i) sales broker Benjamin Chouchane; (ii) sales trader and middle-office 

assistant Henry Condron; (iii) sales broker Marek Leszczynski; (iv) sales 

trader and middle-office assistant Aaron Nowak; and (v) sales broker and 

supervisor Gregory Reyftmann (collectively the “Associated Persons”); 

b. transactions in an account must have included one or more transactions 

specifically identified by Linkbrokers’ records as containing an Undisclosed 

Profit Per Share; and 

c. the account must have suffered an economic harm based on the methodology 

described in paragraph 8 below. 

Of the 157 customer accounts, six did not engage in transactions with any of the 

Associated Persons. Of the remaining 151 customer accounts, 47 either did not have any 

transactions containing an Undisclosed Profit Per Share and/or did not suffer economic harm. 

As a result, the Commission staff concluded that 104 customer accounts are eligible to receive 

compensation from the Net Distribution Fund.

8. Methodology for Calculating Customer Account Harm. For each Eligible 

Customer Account, the staff used Linkbrokers’ records to calculate the account’s total harm 

(“Total Harm”) as follows:

a. For each transaction involving a False Price Per Share, the staff calculated the 

value of the “Undisclosed Profit Per Transaction” by multiplying the 

Undisclosed Profit Per Share by the number of shares in the transaction.

i. For buy orders, the staff determined the Undisclosed Profit Per Share 

by subtracting the Actual Execution Price Per Share from the False 

Price Per Share. 

ii. For sell orders, including short sales, the staff determined the 

Undisclosed Profit Per Share by subtracting the False Price Per Share 

from the Actual Execution Price Per Share. 
6

b. The staff then calculated the Total Harm for each customer account by 

summing the account’s Undisclosed Profit Per Transaction for all transactions 

where the Undisclosed Profit Per Transaction was a positive value.8

9. Methodology for Determining Distribution Amounts. As of the time of the 

publication of this Plan, the total of the Net Distribution Fund and the restitution funds to be 

distributed by the U.S. Attorney’s Office are less than the $18,651,678 Total Harm for all 

customer accounts. As a result, the Plan provides for a pro rata distribution of the Net 

Distribution Fund that also considers the payments an Eligible Customer Account may receive 

from the restitution funds, as described below. 

a. The staff will calculate the Total Harm for each Eligible Customer Account as 

described in paragraph 8 above.

b. The staff will sum the Total Harm for all Eligible Customer Accounts.

c. The staff will divide 9.a. by 9.b. to obtain each Eligible Customer Account’s 

Pro Rata Share.

d. The staff will add the Net Distribution Fund to the expected funds to be 

received by the criminal authorities (“Restitution Funds”) in the matters 

entitled United States v. Leszczynski, No. 12-cr-00923 (S.D.N.Y.) and United 

States v. Condron, No. 12-cr-00768 (S.D.N.Y.) to determine the available 

funds to Eligible Customer Accounts (“Combined Available Funds”).

e. The staff will multiply the Combined Available Funds by each Eligible 

Customer Account’s Pro Rata Share to determine the estimated combined 

distribution amount (“Combined Distribution Amount”) for each Eligible 

Customer Account. This amount will not exceed the account’s Total Harm.

f. An Eligible Customer Account’s distribution from the Net Distribution Fund 

will be calculated as the account’s Combined Distribution Amount less the 

distributions received, if any, from the Restitution Funds. 

 

8 The Commission staff determined that in approximately 3.5% of transactions identified by Linkbrokers as 

containing an Undisclosed Profit Per Share, the Undisclosed Profit Per Share was a negative value, meaning that the 

customer was not harmed in the transaction. For example, on a buy transaction, the False Price Per Share reported 

to the customer was lower than the Actual Execution Price Per Share for the customer’s purchase. Because there is 

no way for the Commission staff to determine if these transactions were somehow part of the misconduct or the 

result of a bookkeeping or other type of error, the Plan’s methodology excludes them from the calculation of Total 

Harm. 
7

Additional funds, if any, received by the Commission will be distributed using the above 

pro rata formula but in no event will the owner of an Eligible Customer Account receive an 

amount greater than the Eligible Customer Account’s Total Harm. Any undistributed funds 

from the Distribution Fund, including funds that for any reason cannot be distributed to the 

intended Eligible Customer Account, will be transferred to the United States Treasury subject to 

Section 21F(g)(3) of the Exchange Act. 

In the view of the staff and Fund Administrator, this methodology constitutes a fair and 

reasonable allocation of the Distribution Fund to compensate owners of Eligible Customer 

Accounts for the harm as a result of the violations alleged by the Commission. 

10. Procedures for Locating and Notifying Owners of Eligible Customer Accounts. 

Within thirty (30) days of the Commission’s approval of the Plan, the Fund Administrator will 

send to the owner of each Eligible Customer Account a notice (“Plan Notice”) by electronic 

mail, United States Postal Service, or other mail delivery service regarding the Commission’s 

approval of the Plan. This communication will include, as appropriate, a statement 

characterizing the distribution, including an estimated net distribution amount, a link to the Plan 

on the Commission’s website and instructions for requesting a copy of the Plan, a description of 

the tax information reporting and other related tax matters, and the name of and contact 

information for the Fund Administrator. The owner of an Eligible Customer Account will be 

asked to respond and provide documentation only if they disagree with the Fund Administrator’s 

Combined Distribution Amount or need to make a change to the account name. The Fund 

Administrator will coordinate with the Tax Administrator to request contact and other 

information from the owner of each Eligible Customer Account needed to accomplish the 

distribution in accordance with applicable tax requirements relating to the Distribution Fund.

If a Plan Notice is returned as undeliverable within sixty (60) days of approval of the 

Plan, the Fund Administrator will make all reasonable efforts to ascertain the owner of an 

Eligible Customer Account’s correct address. If a new address is identified, the Fund 

Administrator will then resend the Plan Notice to the owner of the Eligible Customer Account’s 

new address within thirty (30) days of receipt of the returned Plan Notice. If the Plan Notice is 

returned again with no forwarding address information, the Eligible Customer Account will be 

classified as ineligible and the payment to the owner of such an account will be sent to the 

United States Treasury.

The disposition of any funds remaining in the Net Distribution Fund that cannot be 

distributed for any reason will be reported in the final accounting. 

11. Distribution Timing. The Fund Administrator will use their best efforts to start 

the disbursement process within one hundred and fifty (150) days of the Plan’s approval. 

12. Payments to Eligible Customer Accounts. The Fund Administrator will compile 

the payee information and prepare a payment file in a format approved by Commission staff for 

submission to the Commission. Pursuant to Rule 1101(b)(6) of the Rules, the staff will obtain an 

order from the Commission to disburse the Distribution Fund. All payments will be distributed 

with the United States Dollar (USD or US $) as the form of currency. The Fund Administrator 
8

will maintain information about uncashed checks, any returned items due to non-delivery, 

insufficient addresses, and/or other deficiencies. The Fund Administrator is responsible for 

researching and reconciling errors and reissuing payments when possible. The Fund 

Administrator also is responsible for accounting for all payments. The amount of all uncashed 

checks will continue to be held in the Escrow Account.

13. Expenses of Administration. Fees and other expenses of administering the Plan 

will be paid from the Distribution Fund. 

14. Progress Reports. The Fund Administrator will provide Commission staff with a 

progress report within twenty (20) days after the end of each quarter and a final report with a 

final accounting once the distribution is complete. 

15. Amendments and Procedural Deadline Extensions. The Fund Administrator will 

take reasonable and appropriate steps to distribute funds from the Net Distribution Fund 

according to the Plan. If there are any changes to the Plan that are determined to be material, 

Commission approval is required prior to implementation by amending the Plan, which may be 

done upon the motion of any party, the Fund Administrator, or upon the Commission’s own 

motion. Immaterial changes may be made by the Fund Administrator. For good cause shown, 

the Fund Administrator may extend any of the procedural dates set forth in the Plan.

16. Procedures to Request Plan Notice. Within seventy-five (75) days after the 

Commission’s approval of the Plan, if a person does not receive a Plan Notice and believes that 

they should have received a Plan Notice, the person must submit documentation to the Fund 

Administrator to establish why the person is the owner of an Eligible Customer Account. The 

Fund Administrator will contact the person within twenty-one (21) days of receiving the person’s 

documentation, after consulting with the Commission staff, with a determination regarding the 

person’s claim of ownership.

17. Disputes. Disputes will be limited to calculations of disbursement amounts to the 

owners of Eligible Customer Accounts. Within thirty (30) days of the date a disbursement is 

made, the Fund Administrator must receive a written communication detailing the dispute along 

with any supporting documentation. The Fund Administrator will investigate the dispute, and 

such investigation will include a review of the written dispute as well as any supporting 

documentation. The Fund Administrator may request additional information from the owner of 

the Eligible Customer Account needed to investigate the dispute. Within thirty (30) days of 

receipt of the written dispute, the Fund Administrator should notify the owner of the Eligible 

Customer Account of its resolution of the dispute or the status of the dispute. The Fund 

Administrator’s resolution of any such dispute will be final. This procedure will be set forth in 

the Plan Notice.

18. Disposition of Undistributed Funds. Funds remaining after distribution of the Net 

Distribution Fund has occurred will include funds reserved for future taxes and related expenses

and may include funds from checks that have not been cashed, funds from checks that were not 

delivered and/or funds that may have been returned to the Commission for any other reason. All 

funds remaining in the Net Distribution Fund will be transferred to the United States Treasury 
9

subject to Section 21F(g)(3) of the Exchange Act after the final accounting (as described in 

paragraph 19 below) is approved by the Commission.

19. Final Accounting and Discharge of the Fund Administrator, and Termination of 

the Distribution Fund. The Distribution Fund will be eligible for termination and the Fund 

Administrator will be eligible for discharge after all of the following have occurred: a) a final 

accounting, in a standard accounting format provided by Commission staff, has been submitted 

by the Fund Administrator, and has been approved by the Commission; b) all taxes, final fees 

and expenses of the Fund Administrator and Tax Administrator, and Bureau of Fiscal Service’s

fees have been paid by the Distribution Fund; and c) any amount remaining in the Distribution 

Fund has been received by the Commission. When the Commission has approved the final 

accounting, the Commission staff will seek an order from the Commission to approve the 

termination of the Distribution Fund, the discharge of the Fund Administrator, the cancellation of 

the bond, and the transfer of any amount remaining in the Distribution Fund to the United States 

Treasury.