CGM Qualified Settlement Fund

Frequently Asked Questions

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1. What is this administration about?

On December 18, 2013, the Securities and Exchange Commission (the “SEC”) issued the Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the “Order”) against G-Trade Services LLC, ConvergEx Global Markets Limited and ConvergEx Execution Solutions LLC (collectively, “Respondents”).

The SEC action involved the Respondents’ practice of routing certain global trading and transition management customer orders offshore to CGM in order to charge undisclosed mark-ups and mark-downs (referred to as “trading profits” or “TP”) in addition to disclosed commissions charged by other Respondents on those orders. The conduct involved charging TP on orders placed by customers that had a direct contractual account or trading relationship with one or more of the Respondents (the “Direct Customers”). These orders involved either securities traded in U.S. markets (“U.S. securities”) or securities traded in non-U.S. markets (“non-U.S. securities”), and in many instances both U.S. and non-U.S. securities. Pursuant to the Order, Respondents paid a total of $107,424,429 consisting of disgorgement of $79,802,448 (which represents the trading profits earned on U.S. securities that had been routed to and net traded by CGM during the relevant time period); prejudgment interest of $7,621,981; and a civil money penalty of $20,000,000. The Order created a fair fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, the CGM Qualified Settlement Fund (hereinafter, “Fair Fund”). The Fair Fund constitutes a Qualified Settlement Fund 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 Fair Fund is comprised of the $107,424,429 paid by Respondents, plus $2,011,889 arising from the related actions against additional respondents1 and interest earned thereon, for a total of $109,440,085.58 as of September 30, 2015. The purpose of this administration is to refund a portion of the TP taken on orders placed by Respondents’ Direct Customers between October 2, 2006 and December 31, 2011 (the “Relevant Period”).

1 See SEC v. Lax, 2:15-cv-01079 (D.N.J. Mar. 11, 2015) ($702,795 disgorgement judgment plus $80,502 prejudgment interest); In the Matter of Jonathan Samuel Daspin, Administrative Proceeding File No. 3-15652 (Exchange Act Rel. No. 71126 (Dec. 18, 2013)) ($1,000,000 disgorgement plus $111,550 prejudgment interest); In the Matter of Thomas Lekargeren, Administrative Proceeding File No. 3-15653 (Exchange Act Rel. No. 71127 (Dec. 18, 2013)) ($110,089 disgorgement, $6,953 prejudgment interest); 17 C.F.R. § 201.1103.

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2. Why did I receive a letter?

You received a letter (the “Customer Letter”) because you were identified as a Direct Customer entitled to receive a distribution from the Fair Fund.

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3. What is the amount of the Fair Fund?

The Fair Fund is comprised of a total of $109,440,738.32, as of January 20, 2016.

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4. How much will I be paid?

The methodology set forth in the Plan of Distribution provides for full refunds of TP on U.S. securities and pro rata refunds of TP on non-U.S. securities. A copy of the Plan of Distribution may be viewed by clicking here. Customers will receive a payment in the amount equal to (i) the TP on U.S securities, (ii) a pro rata portion of the TP on non-U.S. securities, or, where applicable, both (i) and (ii).

You may view certain trade data summarizing the TP that was earned on your affected trades and, where applicable, subaccount information relating to your underlying clients (the “Indirect Customers”) through the secure portal established by the Fund Administrator for this matter (the “Portal”). Each Direct Customer’s distribution payment amount (“Your Distribution Payment”) has been set forth in your Customer Letter.

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6. What information is provided in the trade data available on the portal?

The information available on the portal reflects portfolio details of your trading that was routed to Convergex Global Markets LLC (“CGM”). It includes:

  • Trade Date: Date the trade(s) were executed
  • Portfolio: CGM’s internal unique identifier for a basket of trades
  • Country: Country of execution
  • Number of Trades: Number of individual trades represented by the given portfolio line
  • Shares: Executed shares per portfolio line
  • Principal USD: Gross value of all trades in the portfolio line expressed in USD
  • Spread: Trading profit or “TP”
  • Allocation Account: Reference code for a set of your settlement instructions. This could be a subaccount name that you provided, an Omgeo ALERT access code or an internal reference.

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7. Why do I need to submit tax information?

A portion of Your Distribution Payment is attributable to the prejudgment interest that Respondents and the additional respondents were ordered to pay. The interest component constitutes 7.15% of Your Distribution Payment, and you may receive a Form 1099-INT or Form 1042-S reporting this interest to you and the Internal Revenue Service.

In order to receive Your Distribution Payment, please electronically complete and submit a “Substitute Form W-9” by no later than February 12, 2016, via the secure Portal. If you are not a U.S. Person, please electronically complete and submit a Form W-8BEN, W-8BEN-E, or W-8IMY by February 12, 2016, via the Portal. If you do not timely submit a Form W-9, W-8BEN, W-8BEN-E, or W-8IMY, the interest component of Your Distribution Payment will be subject to tax withholding (28% or 30%, as applicable).

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8. What is the deadline to complete and submit this information?

All required information including your Election, payment instructions and tax information, must be completed and submitted through the Portal by February 12, 2016.

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9. How will I be paid?

If requested, electronic payments will be issued, provided that timely, complete and accurate payment instructions are submitted. If you are unable to accept electronic payment, you may request a check. Please note that all payments will be made in U.S. Dollars.

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10. How do I elect to have the distribution payment paid to my Indirect Customers?

Pursuant to the Plan of Distribution, in lieu of receiving Your Distribution Payment directly, you may elect to have Your Distribution Payment paid to your Indirect Customers on whose behalf you placed the affected trades, to the extent applicable. To elect to have Your Distribution Payment paid to your Indirect Customers, you must log on to the Portal by February 12, 2016 to make your Election and you will be required to provide contact information for those Indirect Customers through the Portal. The Fund Administrator may also subsequently require your assistance to identify the affected trades associated with your Indirect Customers.

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11. What happens if I don’t do anything?

If you do nothing, you will not be eligible to receive a payment from the Fair Fund.

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12. How can I update my address?

Customer addresses can be updated through the Portal or you may contact the Fund Administrator using the information posted here.

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13. Where can I obtain additional information about the Fair Fund?

You may obtain additional information about the CGM Qualified Settlement Fund from your Customer Letter and the Plan of Distribution, which is posted here. You may also obtain additional information by contacting the Fund Administrator using the information posted here.

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14. What is Garden City Group, LLC?

Garden City Group, LLC ("GCG") has been appointed by the SEC as the Fund Administrator in this matter.

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15. In the trade details provided on the secure portal, how can I tell what is a U.S. security and what is a non-U.S. security?

Your trade details provided on the secure portal include a column with the country in which the purchase or sale of the security was executed. Securities with “United States” listed in the country column are U.S. securities trades for purposes of the Plan. Securities with any other value in the country column are non-U.S. securities trades for purposes of the Plan.

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16. What if I no longer have the records necessary to identify all of my Indirect Customers or I no longer have current contact details for my Indirect Customers?

If you are unable to identify some or all of the Indirect Customers to whom your distribution payment should be distributed, please let the Plan Administrator know, using the information posted here.

Similarly, if you are able to identify an Indirect Customer but do not have current contact information, please let the Plan Administrator know and provide the Plan Administrator with the last known contact information that you have for the Indirect Customer, using the information posted here.

The Plan Administrator may request additional information of you.

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17. How did the Fund Administrator verify the accuracy of the trade details I received and the TP calculations?

In connection with the SEC investigation and the administration of the Plan, the underlying trading system, trade data and TP calculations have been carefully reviewed, including at various points by the company, outside counsel, an outside consultant retained to verify the integrity of the underlying trading system and its trading records, a separate outside consultant retained to confirm the methodology for calculating TP and the Plan Administrator’s independent verification of the TP calculations.

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