A former London Stock Exchange executive settled a Securities and Exchange Commission lawsuit over claims that he ran a chronically underfunded brokerage for college-age day traders.
The regulator on Wednesday sued Tony Weeresinghe and his Ustocktrade LLC, which operated an alternative platform marketed to students. The business wasn’t profitable and relied on cash infusions from Weeresinghe, the SEC claimed in its suit, filed in Manhattan federal court. The defendants agreed to pay a total of $85,000 in civil penalties to resolve the suit right away, according to court filings.
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The SEC alleged that Weeresinghe and Ustocktrade inadequately funded a broker-dealer the platform controlled. The regulator claimed net capital dropped below its $250,000 minimum during 11 periods in 2021. The threshold is intended to ensure that brokers have enough money on hand to make trades for customers.
Weeresinghe didn’t respond to a request for comment. Ustocktrade terminated its SEC registration and withdrew from the business in 2022, according to the regulator.
Odd Place to Trade
From the start, Weeresinghe’s platform was an unusual place to trade.
Its focus on students, who tend to have less trading experience and thinner bank account balances, set it apart from comparable trading services. It enlisted unpaid undergraduates as “campus ambassadors” to get users on the site. When Bloomberg News asked Weeresinghe about the platform’s risks in 2017, he said that he wanted to “democratize” wealth for a younger generation.
Ustocktrade also promised to use money earned to fund a charity that Weeresinghe and his wife established to build schools for disadvantaged children. On its website the charity said it would strive to provide “equal opportunity education through world class boarding schools,” without many specifics.
“The world takes advantage of innocent children,” an archived version of the charity’s website said, in a quote attributed to Weeresinghe. “We want to empower those children to take advantage of the world.”
The SEC alleged that Ustocktrade never had a profitable year since its 2016 public launch.
Dark Pools
In Wall Street parlance Ustocktrade was a “dark pool,” an off-exchange trading destination. Dark pools gained popularity with big investors who wanted to shield their strategies from public view. They weren’t typically marketed directly to everyday investors, like college students, before the Ustocktrade launch.
Dark pools at big banks ran into their own regulatory crackdown. The SEC levied tens of millions of dollars in fines against private trading platforms run by the lenders over poor disclosures about how the platforms worked.
Though Ustocktrade’s platform ultimately failed, other brokerages with different business models took an interest in younger, small-dollar investors. Robinhood Markets Inc. became a sensation during the Covid-19 pandemic by targeting a younger demographic with a slick mobile trading app.
Repeated Pleas
Ustocktrade fell below the capital threshold by thousands and sometimes tens of thousands of dollars at a time, the SEC alleged. Confronting these recurring shortfalls, Weeresinghe received repeated pleas for cash infusions from the brokerage, according to the suit. He would typically send just enough to clear the $250,000 bar, often using personal funds to do so, the SEC said.
“It does not appear that the firm should be presently operating without additional capital,” an officer for the brokerage wrote to Weeresinghe on one occasion, according to the suit.
The case is Securities and Exchange Commission v. Ustocktrade LLC, 23-cv-06756, US District Court, Southern District of New York (Manhatttan).
--With assistance from Austin Weinstein.
(Updates with details of case and settlement and with context on Ustocktrade and dark pools, starting in second paragraph.)