NEW YORK, Jan 13 (Reuters) - U.S. authorities opened a new chapter in policing high-speed stock trading on Tuesday when they charged a Canadian man with fraud for manipulating stock prices through a process called "layering," according to prosecutors.
The case is the first of its kind to be brought against a trader in the stock market, the authorities said in press releases.
Federal criminal prosecutors in New Jersey charged Aleksandr Milrud, 50, who they said was from Ontario, with one count of wire fraud and one count of conspiracy to commit securities fraud. The U.S. Securities and Exchange Commission filed a separate civil case against him. He was arrested at a home he owns near Miami and was scheduled to appear in federal magistrate court in Miami later on Tuesday.
Reuters could not determine whether he had obtained legal representation.
The SEC and federal prosecutors said Milrud used a network of overseas traders and brokerage accounts to place fake orders for individual stocks to move their prices in a particular direction. The fake orders would be canceled before they could be filled, but traders working for Milrud would also make real trades in the stocks to take advantage of their temporarily inflated or depressed prices.
The practice of high-speed trading, which uses high-powered computers to make trades in fractions of a second has come under criticism by some market participants who claim it creates an unfair advantage for the largest and most sophisticated trading operations.
Critics have warned that high-speed trading could make it easier to engage in practices such as "layering" or "spoofing," both of which involve placing fake orders to create the appearance of increased activity in a stock or other asset in order to move its price.
According to prosecutors, Milrud hired a software company to program "hotkeys" so orders could be made and canceled using just a few keyboard strokes. Milrud allegedly believed his fake orders would be untraceable, but U.S. authorities convinced the owner of an offshore broker-dealer he was using to cooperate with their investigation. Prosecutors said Milrud explained his scheme in detail to the cooperator.
"Milrud's elaborate efforts to disguise this manipulative trading scheme were ultimately unsuccessful," said Joseph G. Sansone, co-deputy chief of the SEC's Market Abuse unit.
The first U.S. federal criminal case stemming from the practice of "spoofing" was filed on Oct. 2 against high-frequency commodities trader Michael Coscia. (Reporting By Emily Flitter; Editing by Peter Galloway)