In re Behruz Afshar

 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES ACT OF 1933 
Release No. 10094 / June 13, 2016 
 
SECURITIES EXCHANGE ACT 1934 
Release No. 78043 / June 13, 2016 
 
INVESTMENT COMPANY ACT OF 1940 
Release No. 32144 / June 13, 2016 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-16978 
 
 
ORDER MAKING FINDINGS AND 
IMPOSING REMEDIAL SANCTIONS 
AND A CEASE-AND-DESIST ORDER 
PURSUANT TO SECTION 8A OF THE 
SECURITIES ACT OF 1933, SECTIONS 
15(b) AND 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, AND 
SECTION 9(b) OF THE INVESTMENT 
COMPANY ACT OF 1940 
 
 
I. 
 
On December 3, 2015, the Securities and Exchange Commission (“Commission”) 
instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the 
Securities Act of 1933 (“Securities Act”), Sections 15(b) and 21C of the Securities Exchange 
Act of 1934 (“Exchange Act”), and Section 9(b) of the Investment Company Act of 1940 
(“Investment Company Act”) against Behruz Afshar (“Behruz”) and Richard F. Kenny, IV 
(“Kenny”), and instituted public administrative and cease-and-desist proceedings pursuant to 
Section 8A of the Securities Act and Section 21C of the Exchange Act against Shahryar Afshar 
(“Shahryar”), Fineline Trading Group LLC (“Fineline”), and Makino Capital LLC (“Makino”). 
 
II. 
 
Behruz, Shahryar, Kenny, Fineline, and Makino (collectively, “Respondents”) have 
submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept.
 
In the Matter of 
 
Behruz Afshar, Shahryar Afshar, 
Richard F. Kenny, IV, Fineline 
Trading Group LLC, and Makino 
Capital LLC, 
 
Respondents. 

2 
 
Solely for the purpose of these proceedings and any other proceedings brought by or on behalf 
of the Commission, or to which the Commission is a party, and without admitting or denying 
the findings herein, except as to the Commission’s jurisdiction over them and the subject matter 
of these proceedings, which are admitted, Respondents consent to the entry of this Order 
Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to 
Section 8A of the Securities Act of 1933, Sections 15(b) and 21C of the Exchange Act, and 
Section 9(b) of the Investment Company Act (“Order”), as set forth below. 
 
III. 
 
On the basis of this Order and Respondents’ Offer, the Commission finds that: 
 
SUMM ARY 
 
1. This case involves two fraudulent trading schemes by Behruz Afshar (“Behruz”) 
and his twin brother, Shahryar Afshar (“Shahryar”), and their close friend, Richard F. Kenny, 
IV (“Kenny”):  the mismarking of option orders to obtain “customer priority” and “spoofing” to 
generate liquidity rebates. The Afshars are sophisticated options traders and former registered 
representatives.  Kenny, during the relevant time period, was a registered representative at 
Lightspeed Trading, LLC (“Lightspeed”).  The Afshars and Kenny conducted the schemes 
through two Lightspeed accounts in the name of Fineline Trading Group LLC (“Fineline”) and 
Makino Capital LLC (“Makino”), limited liability companies which the Afshars owned. 
 
2. The first scheme involved the mismarking of option orders to take advantage of 
the benefits that certain exchanges provide to non-professional, public retail investors.  These 
exchanges, including the Chicago Board Options Exchange, the NYSE AMEX Options, the 
International Securities Exchange, and Nasdaq OMX PHLX (“PHLX”), require option orders 
from the accounts of public customers (not broker-dealers or market-makers) to be marked as 
either “customer” or “professional.” 
 
3. Orders marked “customer” have priority of execution over, and earn higher 
rebates and incur lower fees than, orders marked “professional” at the same price.  A non-
broker-dealer person or entity that places more than 390 orders in listed options per day (on 
average)—whether executed or not—on any listed options exchange during any calendar month 
in a quarter will be designated as a “professional” for the next quarter.  Conversely, a 
“customer” is a non-broker-dealer person or entity that does not exceed the 390-order threshold 
for each calendar month in a quarter. 
 
4. Despite far exceeding the 390-order threshold for every quarter from October 
2010 to December 2012, the Respondents were able to continually place “customer”-marked 
orders throughout this time period by shifting their trading operations on a quarterly basis 
between the accounts of Fineline and Makino.  When Fineline was designated as “professional” 
for an upcoming quarter, the Afshars’ trading operations transitioned that quarter to Makino’s 
account (designated as “customer”), essentially ceasing activity in Fineline’s account.  
Fineline’s inactivity would ensure that its account fell below the 390-order threshold, thereby 
achieving “customer” status for the next quarter, and thus enabling the trading to continue with 

3 
 
the benefits of “customer” designation for that subsequent quarter (while trading in Makino 
essentially ceased).   
 
5. The Afshars and Kenny accomplished this back-and-forth scheme through false 
representations to Lightspeed that Behruz had the sole beneficial interest in Fineline and that 
Shahryar had the sole beneficial interest in Makino, when in fact Behruz had a beneficial 
interest in both companies.  Kenny facilitated the movement of funds and trading operations 
between the accounts.  He also traded in the Afshars’ accounts, received a portion of their 
trading gains, and shared his commissions with the Afshars. 
 
6. By placing orders improperly marked as “customer,” the Respondents deceived 
several exchanges—wrongly avoiding over $2 million in transaction fees—and unfairly 
disadvantaged other market participants with orders that received execution priority. 
 
7. The second scheme involved manipulative trading known as “spoofing” to 
collect rebates from the PHLX.  During the relevant time period, the PHLX employed a 
“maker-taker” fee model that offered rebates for orders that provided—or “made”—liquidity 
(i.e., orders that are posted to the exchange’s order book before executing against a subsequent 
incoming order) and charged fees for orders that “took” liquidity (i.e., orders that execute 
immediately against previously-received, liquidity-providing orders). 
 
8. Between May 2011 and December 2012, the Respondents placed All-Or-None 
(“AON”) orders—undisplayed orders that must be executed in their entirety or not at all—in 
options on the PHLX to generate liquidity rebates.  The Respondents then placed smaller 
orders in the same option series and price as the larger AON orders, but on the opposite side of 
the market.  These small-lot orders, which were displayed, were not bona fide orders because 
they were not intended to be executed.  Instead, they were placed to alter the option’s best bid 
or offer (“BBO”) in order to induce, or “spoof,” other market participants into submitting 
orders at the new BBO, which would then execute against the AON orders.  Upon execution of 
those AON orders, any open displayed orders placed by the Respondents were cancelled. 
 
9. Because the executed AON orders existed prior to the entry of the other market 
participants’ orders, they were deemed to have added liquidity and, thereby, generated rebates. 
In contrast, the other market participants, induced into trading against the AON orders, were 
assessed a “take” fee.  As a result of this trading scheme, the Respondents’ accounts reaped 
over $204,000 in ill-gotten rebates. 
 
RESPONDENTS 
 
10. Behruz Afshar, age 45, of Chicago, IL, worked at Terra Nova Financial, LLC 
(“Terra Nova”), a registered broker-dealer, from February 1997 to August 2007.  While at Terra 
Nova, Behruz was the firm’s head trader, managing and supervising all trading operations of the 
broker-dealer.  Behruz was also associated with another registered broker-dealer from October 
2009 to December 2011.  In March 2008, Behruz started his own trading company, Fineline, 
which began trading through a master sub-account at Terra Nova.  During the relevant time 
period, Fineline traded through a master sub-account at Lightspeed.  Behruz employed traders 

4 
 
on an independent contracting basis to trade in Fineline’s sub-accounts.  Behruz held Series 3, 
4, 7, 24, 53, 55, and 63 licenses. 
 
11. Shahryar Afshar, age 45, of Chicago, IL, is the twin brother of Behruz and was 
a registered representative with Terra Nova from 1998 to 1999, and from March 2005 to 
October 2005, and with various other broker-dealers from 2000 to 2004.  In December 2010, 
together with Behruz and Kenny, Shahryar formed and took an ownership interest in Makino, 
which traded through a master sub-account at Lightspeed.  Makino utilized the same 
independent contracting traders as Fineline to trade in its sub-accounts.  Shahryar held Series 3, 
7, 55, and 63 licenses. 
 
12. Richard F. Kenny, IV, age 45, of Chicago, IL, was a registered representative 
at Terra Nova from 1996 to 1998 and from January 2005 until October 2010, when he became 
a registered representative at Lightspeed as a result of Lightspeed’s acquisition of Terra Nova. 
Kenny held Series 3, 7, 24, 55, and 63 licenses.  Kenny resigned from Lightspeed in December 
2013, due to his refusal to formally attest that he was not sharing his commissions with any 
customers or non-registered individuals.  On October 2014, FINRA filed a complaint against 
Kenny for repeatedly refusing to respond to informational requests in connection with its 
investigation of the Afshars’ trading activity.  In June 2015, FINRA issued a decision against 
Kenny for his failure to provide information and documents that would have identified the 
Afshars and bank accounts in their names or under their control.  FINRA’s decision, which 
became final in July 2015, barred Kenny from association with any FINRA member firm and 
ordered him to pay costs. 
 
13. Fineline Trading Group LLC is a Nevada limited liability company that 
Behruz formed in December 2007.  Fineline is a trading company through which Behruz, 
during the relevant time period, employed up to four independent contracting traders to trade in 
its sub-accounts.  Behruz and Kenny also traded in Fineline’s sub-accounts.  Behruz controlled 
and handled all of Fineline’s trading operations, risk management, and accounting. 
 
14. Makino Capital LLC is a Nevada limited liability company that Shahryar, 
Behruz, and Kenny formed in December 2010.  Makino utilized the same independent 
contracting traders as Fineline to trade in its master sub-account.  Shahryar, Behruz, and Kenny 
also traded in Makino’s sub-accounts.  Behruz controlled and handled all trading operations, risk 
management, and accounting for Makino. 
 
OTHER RELEVANT ENTITIES 
 
15. Lightspeed Trading LLC is a New York limited liability company that was 
formed in 1998.  Lightspeed is a broker-dealer registered with the Commission pursuant to 
Section 15(b) of the Exchange Act.  Lightspeed’s principal place of business is in New York, 
New York; the firm also has a branch office in Chicago.  Lightspeed, which acquired Terra 
Nova in 2010, is a member of FINRA and various exchanges. 
 
16. Third Rail Management, Inc. (“Third Rail”) is a Nevada S corporation that 
Kenny formed in 2008.  During the relevant time period, among other things, Third Rail’s 

5 
 
bank account facilitated monetary transfers between the checking accounts of Fineline and 
Makino. 
FINDINGS 
 
A. The Afshar Brothers and Kenny 
 
17. The Afshar brothers and Kenny are close friends.  They attended the same 
middle school and college, and had overlapping tenures at Terra Nova where Behruz was 
director of the firm’s trading operations, and where Kenny and Shahryar were registered 
representatives. 
 
18. In October 2010, Kenny became a registered representative at Lightspeed as a 
result of Lightspeed’s acquisition of Terra Nova.  Kenny, although a registered representative 
with Lightspeed, was considered an independent contractor or “external broker” of the firm. 
 
19. Kenny brought with him to Lightspeed some of the customer accounts he 
personally serviced while at Terra Nova, including his two largest customers, Behruz and 
Shahryar and their accounts, most notably, Fineline. 
 
20. During his tenure at Lightspeed, Kenny, as an “external broker,” was not 
required to work at the firm’s registered office in Chicago, but operated alongside Behruz at a 
trading desk they leased on one of the floors of the Chicago Stock Exchange, Inc.  Shahryar 
traded from his home or at one of the terminals at his brother’s and Kenny’s rented trading 
desk. 
 
21. Kenny helped Behruz form Fineline and Makino by filing the formation 
documents with the state of Nevada and serving as Fineline’s resident agent.  Kenny was also 
Fineline’s registered representative at Terra Nova (and later at Lightspeed) and Makino’s 
registered representative at Lightspeed, earning commissions on trades in their accounts.  
Kenny, along with Behruz, was also a signer on the companies’ checking accounts and a 
named cardholder of Fineline’s business credit card. 
 
22. During the relevant time period, Fineline and Makino employed at least 
four traders on an independent contracting basis to trade in the companies’ sub-accounts, 
using trading capital provided by the Afshars. 
 
23. Generally, a master sub-account is an account at a broker-dealer where a top-
level customer, in most instances a limited liability company or limited liability partnership, is 
allowed to have subordinate accounts for different trading activities.  These subordinate, or 
sub-, accounts are then typically used by individual traders or groups of traders. 
 
24. Three  of  the  independent  contracting  traders  of  Fineline  and  Makino  traded  in 
the same office space in San Francisco, and the other trader was a friend of the Afshars who 
traded primarily alongside Behruz and Kenny at their trading desk. 
 
25. The master sub-account arrangement with portfolio margining afforded the 
traders increased “buying power” and leverage as each trader could trade on margin against the 

6 
 
value of the entire Fineline or Makino master account.  The traders agreed to split their 
respective net gains—which included the rebates earned on their trades—with the Afshars on a 
50-50 basis. 
 
26. Behruz oversaw all of the activity of the sub-account traders of Fineline and 
Makino on a real-time basis, kept track of their order counts, provided operational, risk-
management, and technological support, as well as access to trading software to place and 
route orders to specific exchanges.  Behruz also controlled and handled the traders’ capital and 
managed all accounting, including determining the sub-account traders’ payouts and expense 
reimbursements, and ensuring that the companies’ trading profits (after compensating the sub-
account traders) were split three ways—among himself, Shahryar, and Kenny. 
 
27. Behruz and Kenny also kept track of, on a monthly basis, the exchanges’ 
maker-taker pricing models and fee schedules and informed the sub-account traders of any 
changes. 
 
28. From October 2010 to December 2013, Kenny earned approximately $2 million 
in commissions, of which over $1.5 million was earned from the Afshars’ accounts.  Kenny 
shared those commissions with the Afshars and personally traded in the sub-accounts of both 
Fineline and Makino.  This conduct, which Kenny failed to disclose to Lightspeed, violated the 
broker-dealer’s written supervisory procedures. 
 
B. The “Professional” Order Type for Options 
 
29. A “professional order” is defined as an order for the account of a person or entity 
that:  (1) is not a broker or dealer in securities; and (2) places more than 390 orders in listed 
options per day—whether executed or not—on any listed options exchange on average during 
any calendar month of a quarter for its own beneficial account(s) (“390-order threshold”).  
Three hundred ninety orders is equal to the total number of orders that a person would place in a 
day if that person entered one order every minute from market open to market close. 
 
30. A “customer priority” order is defined as an order for the account of a non-
broker-dealer person or entity that falls below the 390-order threshold for each calendar month 
in a quarter. 
 
31. All orders for multiple accounts beneficially owned or controlled by the same 
person or entity, and all sub-accounts of a person or entity’s master account, must be 
aggregated when determining whether the 390-order threshold has been exceeded by that 
person or entity. 
 
32. A “customer priority” order is given priority of trade execution over 
“professional” and broker-dealer orders at the same price and, with few exceptions, does not 
incur any transaction fees and receives higher rebates (or pays lower fees) for adding (or 
removing) liquidity.  Options exchanges provide these benefits to customer priority orders to 
attract retail order flow and level the playing field for retail investors over market 
professionals. 
 

7 
 
33. Lightspeed coded orders as “customer” or “professional” based on a quarterly 
counting of its customers’ orders.  Orders from accounts with the same beneficial ownership 
(including all sub-accounts under a master account) were aggregated and totaled on a per-
month basis to determine whether an account exceeded the 390-order threshold.  Because 
trading activity was reviewed quarterly to determine whether orders for an account should be 
represented as “professional” or “customer,” a professional account one quarter can become a 
customer account next quarter, and vice versa, depending on the previous quarter’s order 
count. 
 
C. The “Customer-Priority” Scheme 
 
1. The Scheme Generally 
 
34. From at least December 2010 to December 2012, the Afshars and Kenny 
perpetrated a scheme to fraudulently maintain “customer”-designation of all the orders from the 
Afshars’ accounts without interruption despite their order counts at Lightspeed far exceeding the 
390-order threshold for every month during that time period. 
35. The scheme was accomplished by having the trading operations at Lightspeed 
alternate between the Fineline and Makino accounts each quarter, depending on which account 
was “customer”-designated, with the other “professional” account conducting little to no activity. 
 
36. Both Kenny and Behruz knew Lightspeed’s quarterly review procedures which 
required the aggregation of orders for all beneficially owned accounts (and their sub-accounts, 
if any existed).  Kenny also read industry guidance regarding the requirement to aggregate 
orders and the exchanges’ prohibition on avoiding the “professional” designation by spreading 
trading activity over multiple accounts. 
 
37. Typically, at the end of each quarter, Kenny or Behruz sought confirmation from 
Lightspeed that either the Fineline or Makino account would be designated as “professional” 
and that the other account would “come off pro” and revert back to “customer.” 
 
38. After receiving confirmation from Lightspeed that the mostly dormant 
“professional” account would return to “customer” status at the start of the next quarter, 
Behruz alerted the sub-account traders of their upcoming transition to a new account and 
required them to wind down any open positions.  Kenny ensured that the sub-account traders 
had trading authority and proper access credentials to seamlessly move between accounts.  He 
also assisted the Afshars in transferring sufficient trading capital between the two master sub-
accounts to enable the trading operations to continue without interruption. 
 
39. To avoid account aggregation, the Afshars and Kenny represented to Lightspeed 
that Behruz was the sole beneficial owner of the former, and Shahryar was the sole beneficial 
owner of the latter. 
 
40. In fact, Behruz had a beneficial interest in both Fineline and Makino.  Fineline’s 
account opening documents, signed by Behruz and submitted to Lightspeed, listed Behruz as 
the only individual with a beneficial interest in the company.  Fineline’s incorporation 

8 
 
documents also reflect that Behruz was the sole managing member of the company during the 
relevant time period. 
 
41. For Makino, Behruz controlled the trading in the account and shared in its 
profits. 
 
42. Had Lightspeed known that Behruz in fact controlled and managed both 
companies’ accounts and had a beneficial interest in Makino, or that both companies’ trading 
profits (after paying the sub-account traders) were divided among the Afshars and Kenny, 
the accounts of Fineline and Makino would have been marked “professional” for every 
quarter during the relevant time period. 
 
2. The Genesis and Intent of the Customer-Priority Scheme 
 
43. The scheme took shape in December 2010, when Behruz and Kenny, fully aware 
of the aggregation requirements of orders from beneficially owned accounts, explored ways to 
ensure that Fineline’s trading continued in a “customer”-marked account for the first quarter of 
2011.  Behruz and Kenny initially sought to open a new master sub-account at another broker-
dealer.  In mid-December 2010, Behruz forwarded to one of the sub-account traders an email 
from the other broker-dealer about the availability of a new master sub-account for trading by 
January 3, 2011, stating, “[b]elow is an email from my guy at the other BD we plan on trading 
soon....  In case you were wondering, we plan on having accounts open at multiple firms 
under different names so we can keep trading :).” 
 
44. The idea of opening an account at the other broker-dealer was abandoned when 
Lightspeed’s compliance department refused to approve Kenny’s dual association with the 
other broker-dealer. 
 
45. Behruz, Kenny, and Shahryar ultimately decided to form a new entity, Makino, 
named after a sushi restaurant in Las Vegas, Nevada that Shahryar frequented, open a master 
sub-account in its name at Lightspeed, and then make it appear that Makino was not 
beneficially owned by Fineline and/or Behruz.  As Behruz explained to a sub-account trader 
via instant message: 
 
Behruz: i’m always about the money, the problem that we face is 
Monday [January 3, 2011] we are Pro[fessional]...that doesn’t 
change 
Behruz: I was ready to have a customer account for [sic] to trade 
in as of last week, but some powers that may be came in and put 
some strain on that account so we had to go another route which 
will still accomplish our goal.... 

9 
 
Behruz: you should see all the s*** we’re doing here...too funny 
Sub-Account Trader: costume party? what do you mean? 
Behruz: opening bank accounts, trading accounts, etc .... 
Behruz: i think we have about 10 llc here all tied to sushi names 
Sub-Account Trader: LOL 
Sub-Account Trader: you and your fish man 
Sub-Account Trader: too funny 
Behruz: i’m not even the one that came up with these damn names 
Sub-Account Trader: haha who made em up 
Behruz: my bro and rich 
 
46. Kenny filed paperwork with the state of Nevada to form Makino on December 20, 2010.  
Those formation documents included Shahryar as the only principal of the company, despite the fact 
that Behruz and Kenny also had a beneficial interest in the company.  One week later, Kenny 
completed and submitted an application to Lightspeed for a new master sub-account for Makino.  That 
application, signed by Shahryar, falsely stated that Shahryar had the sole interest in Makino. 
 
47. Once Makino’s master sub-account was approved by Lightspeed in mid-January 2011, 
Fineline’s trading, with Behruz managing the operations and Kenny serving as the registered 
representative (and an unofficial sub-account trader), was able to continue as a “customer”—for the 
first quarter of 2011 in the new Makino account—and for all subsequent quarters in the relevant time 
period as those operations seamlessly alternated between the two accounts. 
 
48. By the fourth quarter of 2012, Behruz became frustrated with aggregating the sub-account 
traders’ orders for purposes of determining the 390-order threshold, and confided in a former colleague 
from Terra Nova that it was time to “kill the whole idea of having these master sub setups and having 
individual traders being just backed and they have to monitor their order counts.  That way we don’t – 
they don’t have to f***in’ bounce around” between Fineline and Makino. 
 
49. As a result, starting in January 2013, the Respondents’ plan was for each sub-account 
trader to establish their own LLC, open an account at Lightspeed in the name of that LLC in which 
to trade, and have Fineline “operate as we always have, but more as a lender of capital,” controller of 
all the “money flow,” and recipient of a split of the traders’ respective net gains.  “The idea,” as 
Behruz wrote, “[was] to function in a capacity where [Fineline] will not have beneficial ownership 
but will still be able to provide traders with the same service” and with trading capital.  Moreover, 
each trader had to “adhere to the 390 rule or else run the risk of being coded pro-customer.” 
  

10 
 
3. Specific Example of the Customer-Priority Scheme 
 
 
2011: 
50. The Respondents placed the following number of orders in the fourth quarter of 
 
 
Month 
 
Account Name 
Account 
Designation 
 
Aggregate Orders 
 
Daily Average 
October 2011 Fineline Trading Group LLC Customer 91,250 4,345 
 
Makino Capital LLC Professional 78 4 
November 2011 Fineline Trading Group LLC Customer 76,916 3,663 
 
Makino Capital LLC Professional 2 0.10 
December 2011 Fineline Trading Group LLC Customer 80,134 3,816 
 
Makino Capital LLC Professional 0 0 
 
51. In anticipation of Fineline becoming designated as “professional” for the first quarter 
of 2012 based on the order counts above, Kenny began the process of re-activating the Makino sub-
accounts in late December 2011. 
 
52. On December 27, 2011, Kenny emailed a representative in Lightspeed’s accounts 
department requesting log-in credentials for the Makino sub-accounts.  In his email, Kenny falsely 
represented that only Shahryar would be trading in each of the sub-accounts and that Shahryar was 
the only member of Makino, attaching trade authorization forms signed by Shahryar listing only his 
name for each sub-account.  On December 30, 2011, Kenny received the log-in credentials. 
 
53. As part of ensuring a seamless transition of trading operations from Fineline to 
Makino for the start of the first quarter of 2012, Behruz transferred trading capital from Fineline to 
Makino through an entity owned by Kenny. 
 
54. On December 30, 2011, Behruz submitted a wire request to Lightspeed to transfer 
$420,000 from Fineline’s brokerage account to its checking account.  After receiving those funds, 
on the same day, Fineline’s checking account transferred $220,000 to a checking account in the 
name of Third Rail, an entity Kenny owned and which helped facilitate money transfers between 
Fineline and Makino, with the remaining $200,000 transferred to Makino’s checking account 
(increasing Makino’s account balance to over $400,000). 
 
55. On January 3, 2012, Third Rail transferred $200,000 to Makino’s checking account 
(increasing its account balance to more than $600,000).  Later that day, Makino transferred 
$600,000 to its brokerage account at Lightspeed and Kenny emailed the sub-account traders their 
respective log-in credentials received from Lightspeed’s accounts department to begin trading in 
the Makino sub-accounts. 
 
56. The next day, January 4, Third Rail’s checking account transferred $250,000 to 
Makino’s checking account, all of which Makino  then  transferred  to  its  brokerage  account  at 
Lightspeed, providing additional trading funds. 

11 
 
 
57. Third Rail’s involvement in the transfers between Fineline and Makino was intended 
to avoid raising suspicions that the two companies were affiliated. 
 
58. The following shows the shifting of trading activity from Fineline’s account to 
Makino’s account (now “customer”) in the first quarter of 2012: 
 
 
Month 
 
Account Name 
Account 
Designation 
 
Aggregate Orders 
 
Daily Average 
January 2012 Fineline Trading Group LLC Professional 438 21 
 
Makino Capital LLC Customer 97,122 4,625 
February 2012 Fineline Trading Group LLC Professional 16 0.8 
 
Makino Capital LLC Customer 100,187 5,009 
March 2012 Fineline Trading Group LLC Professional 12 0.55 
 
Makino Capital LLC Customer 107,232 4,874 
 
59. On March 29, 2012, Kenny requested, and received, confirmation from Lightspeed 
that Fineline’s designation would revert back to “customer” at the start of the second quarter based 
on the order counts above.  Later that day, Kenny requested that Lightspeed “expire” the Makino 
log-in credentials used by the sub-account traders and “enable” four Fineline log-in credentials, 
effective Monday, April 2, 2012, the first trading day of the next quarter. 
 
60. As part of transitioning the trading operations from Makino back to Fineline for the 
start of the second quarter of 2012, Makino transferred trading capital to Fineline.  On Friday, 
March 30, 2012, Makino requested a wire transfer of $730,000 from its Lightspeed account to its 
checking account.  On April 2, 2012, Makino transferred $500,000 and $80,000 to Third Rail’s 
and Fineline’s checking accounts, respectively, and Kenny emailed the sub-account traders their 
new log-in credentials for the re-activated Fineline sub-accounts.  On April 4, 2012, Third Rail 
transferred $300,000 to Fineline’s checking account.  Several days later, on April 9, 2012, 
Fineline transferred $400,000 to its Lightspeed account providing additional trading funds. 
 
4. The Deceived Parties of the Customer-Priority Scheme 
 
61. The “customer priority” scheme was intended to deceive the exchanges requiring 
option orders from public customers to be designated as either “customer” or “professional.”   On 
the basis of that order designation, the exchanges determined which orders received priority of 
execution and the amounts of all related transaction credits and debits, including liquidity rebates, 
“take” fees, transaction costs, and cancellation fees.  Lightspeed passed on the full amount of these 
credits and debits from the exchanges to the corresponding customers that placed the orders. 
 
62. As a result, the customer-priority scheme netted the Respondents’ accounts over 
$2 million in exchange fees avoided. 

12 
 
63. In addition, the scheme unfairly disadvantaged other professional market 
participants over whom the Respondents’ “customer” orders wrongly received priority of 
execution for orders at the same price.  Put another way, professional public customers placing 
orders at the same price as Respondents’ orders were harmed by the Respondents’ advantageous 
position of execution priority through the customer-priority scheme. 
 
64. The Respondents’ trading operations and the volume and frequency of their 
orders in no way resembled those of a non-professional, retail customer.  The Respondents 
undermined the purpose of the “professional”-order type, which was to level the playing field 
between public customers and professional traders, by wrongly claiming for themselves the 
benefits exchanges only offered to non-professional, public customers. 
 
D. The “Spoofing” Scheme 
 
1. The Scheme Generally 
 
65. Between May 2011 and December 2012, the Respondents engaged in “spoofing” 
to generate rebates from the PHLX, which was a maker-taker exchange at the time.  In general, 
spoofing describes a trader’s use of “non-bona fide” orders (i.e., orders that the trader does not 
intend to have executed) in a security on one side of the market, which affect the price and/or 
volume of that security, for the purpose of inducing other market participants to execute against 
the trader’s orders in the same security but on the opposite side of the market.  The spoofing 
employed by the Respondents focused on options in symbols that were eligible for rebates on 
the PHLX. 
 
66. The Respondents, or the sub-account traders under the Respondents’ direction 
and/or supervision, entered a series of nondisplayed AON orders to buy (or sell) options on the 
PHLX in these symbols at a price that was a penny more (or less) than the option’s current best 
bid (or offer).  AON orders are undisplayed orders to buy or sell securities that must be executed 
in their entirety, or not executed at all.  AON orders continue to remain active (and hidden) until 
they are executed or cancelled.  Because AON orders are undisplayed, their prices do not affect 
the national best bid or offer (“NBBO”). 
 
67. The Respondents, or the sub-account traders under the Respondents’ direction 
and/or supervision, then placed smaller, non-bona fide sell (or buy) orders—typically, for one 
contract (“a one-lot”)—on the PHLX (or a different exchange) at the same price as the AON 
orders, but on the opposite side of the market (the “small-lot orders”).  Because the size of the 
small-lot orders was less than the AON orders, those orders did not execute against each other. 
The small-lot orders, which were displayed, were placed for the purpose of lowering (or 
raising) the option’s best offer (or bid) by one penny in order to induce other market 
participants to send orders on the same side at that price level.  Once other market participants 
joined the small-lot order with sufficient quantity, their orders executed against the AON 
orders.  After the AON orders were filled, any open, non-bona fide, small-lot order was 
cancelled.  Typically, the strategy was repeated on the opposite side of the market to close out 
the position. 

13 
 
68. Because the AON orders were posted to the PHLX’s order book before executing 
against subsequently received orders, the PHLX credited them with having provided liquidity 
and paid rebates that Lightspeed passed on to the Afshars’ accounts.  Conversely, the orders 
from the other market participants, who were “spoofed” into executing against the pre-existing 
AON orders, were considered to have removed liquidity and charged a “take” fee by the 
PHLX. 
 
69. Once the PHLX removed their maker-taker pricing schedule for “customer”-
marked orders effective January 2013, the AON spoofing scheme came to an end, or as 
Behruz summed it up, “bye bye AON fun.”  As a result of this scheme, the Respondents’ 
accounts generated over $204,000 in rebates from the PHLX. 
 
70. The use of small-lot orders to spoof other market participants into executing 
against the non-displayed AON orders was described by Behruz as the “hidden X-A,” 
referring to the coding of orders that earned rebates from the PHLX (“X” for PHLX and “A” 
for adding liquidity) and described by Kenny as “bringing in the offer” (to fill AON buy 
orders) or “bringing in the bid” (to fill AON sell orders), as reflected in instant messages: 
 
Behruz: i love getting ‘em with the hidden x-a anyhow . . . bring 
me such pleasure and joy . . . at times I roll over laughing 
Sub-Account Trader: haha 
Sub-Account Trader: yes 
Sub-Account Trader: it’s a nice feeling 
Sub-Account Trader: I love it when I use nasd [to place the small-
lot order] to bring the bid/offer in and then get em 
 
------------------- 
 
Sub-Account Trader: did you see the [Microsoft trade] [last] 
month? 
Sub-Account Trader: yday 
Sub-Account Trader: no liquidity 
Kenny: i didn’t...you get some? 
Sub-Account Trader: but i offered em on phlx aon and brought the 
bid in on phlc [sic] 
Sub-Account Trader: i LOVE doin that lol ... 
Kenny: that is the finest... bringing in the bid or offer 
Kenny: makes you feel proactive! 
Sub-Account Trader: makes me feel like i was smarter than 
the computer haha 
Kenny: true dat 

14 
 
2. A Specific Spoofing Example 
 
71. On October 15, 2012, between 9:52:50 and 9:52:54, Kenny himself placed twelve 
AON orders, each to sell ten call option contracts of Ford, with November 2012 expiration and a 
strike price of $11.00, for $.08 on the PHLX (for a total of 120 contracts). 
 
 At the time, the inside bid for this option series was $.07 and the inside offer was 
$0.09 and the bid size was over 2,400 contracts. 
 
 The AON orders did not change the national best offer because they were 
not displayed to other market participants. 
 
 Kenny placed the AON orders in one of the sub-accounts of Fineline, which was 
designated “customer” because its activity in the prior  quarter  fell  below  the 
390-order threshold. 
 
72. At 9:52:56, Kenny placed a one-lot order to purchase the same call option series 
in Ford for $0.08 on the PHLX from one of the sub-accounts of Makino, which at the time was 
designated “professional,” presumably to avoid raising any suspicions of a wash trade and to 
decrease the likelihood of an execution (due to the lower priority of “professional” orders). 
 
 The one-lot order raised the national best bid from $0.07 to $0.08—narrowing the 
NBBO spread from two cents ($0.07 x $0.09) to one cent ($0.08 x $0.09). At that 
one-cent spread, the bid size was only one contract—reflecting the one-lot order. 
 
 That order was guaranteed not to execute against the AON orders because 
the quantity of the AON orders exceeded the one-lot. 
 
 At 9:52:59, Kenny cancelled the one-lot order, which lowered the national best 
bid back to $0.07 (at which price the bid size was more than 2,300 contracts). 
 
73. At 9:56:01, Kenny placed another one-lot buy order at $0.08 in the same 
call option series. 
 
 The one-lot order increased the best bid to $0.08 (at which price the bid size was 
again one contract). 
 
 At 9:56:03, Kenny placed six more AON sell orders in the same call option series at 
$0.08 (increasing the AON sell orders to 180 total contracts). 
 
 Between 9:56:03 and 9:56:43, other market participants submitted buy orders at 
$0.08 in sufficient quantities to completely fill all eighteen AON orders. 
 
 At 9:56:43, all eighteen AON orders were executed, resulting in $46.80 in 
liquidity rebates for the Fineline account ($0.26 per contract). 

15 
 
 
 At 9:56:45, Kenny cancelled the open one-lot order, dropping the best bid back to 
$0.07. 
 
3. The Genesis and Intent of the Spoofing Scheme 
 
74. Behruz developed the scheme, sometimes referred to as “AON-ing,” or 
simply “AON,” after he observed non-marketable orders from the Afshars’ accounts—
which he believed were eligible for rebates upon their execution—executed immediately 
and were charged a “take” fee for removing liquidity.  After learning that the orders 
executed against hidden orders, Behruz began testing AON orders on the PHLX. 
 
75. Behruz later learned that “customer”-marked AON orders were not assessed 
cancellation fees by the PHLX (unlike “professional” AON orders).  This made the spoofing 
strategy economically viable because the Afshars’ accounts could post AON orders and cancel 
them without penalty if they were not filled.  As a result, in early May 2011, Behruz 
introduced the AON strategy to Kenny and the sub-account traders. 
 
76. On some occasions, Behruz and Kenny placed small-lot orders on the PHLX to 
assist the sub-account traders in filling their AON orders, typically using a different sub-account 
(or the account designated as “professional” at the time).  Kenny told one of the sub-account 
traders that “as far as AON goes, [Behruz] and i love to help. i love to positions [sic] get closed.” 
 
77. At times, the sub-account traders requested this assistance and other times, Behruz 
and Kenny proactively offered it.  For example, Kenny wrote one sub-account trader:  “that you 
AONing in MSFT? i’m gonna prop it up and get u filled” and, on another occasion, wrote: 
“lemme help you out.  load up your aons.”  Similarly, Behruz corresponded with a trader: 
 
Behruz:... I’d rather do the phlx aon on that and bring the offer in 
Sub-Account Trader: ok . . . 
Sub-Account Trader: 10 50 lots? 
Behruz: yes 
Sub-Account Trader: ok done 
Behruz: when you’re done we’ll cancel the 1 lot 
Behruz: that’s my offer 
Sub-Account Trader: k 
Behruz: come here kitty kitty 
Behruz: they are afraid :) 
 
4. The Victims of the Spoofing Scheme 
 
78. Market participants were deceived when they interpreted the small-lot orders as 
reflecting genuine demand or supply and joined those orders with hopes of offering liquidity and 
earning rebates.  Instead, their orders often executed against the hidden AON orders and resulted 
in “take” fees.  These market participants were deceived into executing against AON orders 
placed from the Afshars’ accounts at prices that had been artificially raised (or lowered) by those 
same accounts. 
 

16 
 
79. In fact, one market participant alerted the PHLX about being deceived by such 
trading.  On October 31, 2012, a trader at a registered broker-dealer, market-maker, and 
proprietary trading firm, notified her supervisor, the head of the firm’s U.S. options market 
making (“Head Trader #1”), that “[t]oday we saw in GE us remove large size on PHLX using 
quotes.  We join a 1-lot bid and end up removing liquidity via 10-lot trades (the 1-lot remains). 
Last time we saw this behavior the exchange verified that we had crossed with an ALL-or-
NONE order.  I am curious if it is the same case here and if the counterparty we execute 
against is the same firm that has a 1-lot bid in the depth.” 
 
80. Unbeknownst to the firm, on October 31, 2012, from 12:29:31 to 12:29:43, Kenny, 
in one of Fineline’s sub-accounts, placed twenty-four AON orders on the PHLX, each to sell ten 
contracts of GE (with November 2012 expiration and strike price of $22.00) for $0.07 (for a 
total of 240 contracts).  At the time, the inside bid for this option was $0.06 (with a size of 1,897 
contracts) and the inside ask was $0.08 (at 5,291 contracts).  At 12:29:47, Kenny, from one of 
Makino’s sub-accounts, placed a one-lot order on the PHLX to buy the same option at $0.07. 
That one-lot order raised the inside bid from $0.06 to $0.07 (with a bid size of one contract). 
 
81. In response to that price movement, at 12:34:38, the firm’s trading algorithm 
joined the one-lot order with an order to buy 130 contracts of the November 2012 GE option 
at $0.07 to provide liquidity at the new bid and potentially earn rebates.  However, rather than 
providing liquidity, the firm’s order immediately executed in full against thirteen of the 
preexisting twenty-four AON orders placed by Kenny.  The firm’s order thus removed 
liquidity and was charged a “take” fee by the PHLX.  At 12:36:36, Kenny cancelled the one-
lot order, moving the inside bid back to $0.06 (with a size of 602 contracts). 
 
82. Several hours later, after being informed of these findings, Head Trader #1 
emailed individuals at the PHLX about his concerns:  “[W]e have encountered some strange 
trading behavior recently on PHLX.  It appears like we are trading against hidden AON orders, 
and we believe that someone might be manipulating the market.  Here is one example from 
today that we found in GE, all timestamps are CST.  Before the trades happened the PHLX BBO 
was .07 bid at .08.  The volume on the .07 bid was 1 contract.  We tried to join the .07 bid for a 
size of 130 contracts, and we immediately traded 13 times, each trade was for 10 contracts.  We 
are particularly concerned that a market participant is entering an order to buy 1 contract at .07 
(not AON), and then they are layering many orders to sell at .07 using an AON contingency.” 
 
VIOLATIONS 
 
83. As a result of the conduct described above, Respondents Behruz Afshar and 
Kenny willfully violated Section 9(a)(2) of the Exchange Act, which makes it unlawful “to 
effect, alone or with one or more other persons, a series of transactions in any security . . . 
creating actual or apparent active trading in such security, or raising or depressing the price of 
such security, for the purpose of inducing the purchase or sale of such security by others.” 

17 
 
 
84. As a result of the conduct described above, Respondents Behruz Afshar and 
Kenny willfully violated Sections 17(a)(1), (2) and (3) of the Securities Act and Section 10(b) of 
the Exchange Act and Rules 10b-5(a), (b) and (c) thereunder, which prohibit fraudulent conduct 
in the offer and sale of securities and in connection with the purchase or sale of securities. 
 
85. As a result of the conduct described above, Respondents Shahryar Afshar, 
Fineline, and Makino violated Sections 17(a)(1), (2) and (3) of the Securities Act, 
Sections 9(a)(2) and 10(b) of the Exchange Act and Rules 10b-5(a), (b) and (c) 
thereunder. 
 
IV. 
 
In view of the foregoing, the Commission deems it appropriate, in the public interest, 
and for the protection of investors to impose the sanctions agreed to in the Respondents’ Offer. 
 
Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the 
Exchange Act, and Section 9(b) of the Investment Company Act as to Respondents Behruz 
Afshar and Kenny, and Section 8A of the Securities Act and Section 21C of the Exchange Act 
as to Respondents Shahryar Afshar, Fineline, and Makino, it is hereby ORDERED that: 
 
A. Respondents cease and desist from committing or causing any violations and 
any future violations of Section 17(a)(1), (2) and (3) of the Securities Act, Sections 9(a)(2) and 
10(b) of the Exchange Act and Rules 10b-5(a), (b) and (c) thereunder. 
 
B. Respondents Behruz Afshar and Kenny be, and hereby are: 
 
barred from association with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or 
nationally recognized statistical rating organization; 
 
prohibited from serving or acting as an employee, officer, director, 
member of an advisory board, investment adviser or depositor of, or 
principal underwriter for, a registered investment company or affiliated 
person of such investment adviser, depositor, or principal underwriter; 
and 
 
barred from participating in any offering of a penny stock, including: 
acting as a promoter, finder, consultant, agent or other person who 
engages in activities with a broker, dealer or issuer for purposes of the 
issuance or trading in any penny stock, or inducing or attempting to induce 
the purchase or sale of any penny stock. 

18 
 
 
C. Any reapplication for association by Respondents Behruz Afshar or Kenny will 
be subject to the applicable laws and regulations governing the reentry process, and reentry may 
be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or 
all of the following:  (a) any disgorgement ordered against Respondents Behruz Afshar or 
Kenny, whether or not the Commission has fully or partially waived payment of such 
disgorgement; (b) any arbitration award related to the conduct that served as the basis for the 
Commission order; (c) any self-regulatory organization arbitration award to a customer, 
whether or not related to the conduct that served as the basis for the Commission order; and (d) 
any restitution order by a self-regulatory organization, whether or not related to the conduct that 
served as the basis for the Commission order. 
 
D. Respondents Behruz and Shahryar Afshar shall pay disgorgement of 
$1,048,824.67, for which they shall be jointly and severally liable.  In addition, Behruz Afshar 
shall pay a civil money penalty of $150,000 and Shahryar Afshar shall pay a civil money penalty 
of $75,000.  Payments shall be made to the Securities and Exchange Commission for transfer to 
the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  
Payment shall be made in the following installments: 
 
(1) $666,666.67 within 10 days of entry of the Order; 
(2) $133,333.33 within 120 days of entry of the Order; 
(3) $133,333.34 within 240 days of entry of the Order; and 
(4) $340,491.33 within 360 days of entry of the Order. 
 
If any of these payments is not made by the date the payment is required by this Order, 
the entire outstanding balance of disgorgement and civil penalties, plus any additional interest 
accrued pursuant to SEC Rule of Practice 600 and pursuant to 31 U.S.C. §3717, shall be due and 
payable immediately, without further application. 
 
E. Respondent Kenny shall pay disgorgement of $524,412.33 and a civil money 
penalty of $100,000 to the Securities and Exchange Commission for transfer to the general fund 
of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  Payment shall be 
made in the following installments: 
 
(1) $333,333.33 within 10 days of entry of the Order; 
(2) $66,666.67 within 120 days of entry of the Order; 
(3) $66,666.66 within 240 days of entry of the Order; and 
(4) $157,745.67 within 360 days of entry of the Order. 
 
If any of these payments is not made by the date the payment is required by this Order, 
the entire outstanding balance of disgorgement and civil penalties, plus any additional interest 
accrued pursuant to SEC Rule of Practice 600 and pursuant to 31 U.S.C. §3717, shall be due and 
payable immediately, without further application. 

19 
 
F. Payments must be made in one of the following ways: 
 
(1) Respondents may transmit payment electronically to the 
Commission, which will provide detailed ACH transfer/Fedwire 
instructions upon request; 
 
(2) Respondents may make direct payment from a bank account via 
Pay.gov through the SEC website at 
http://www.sec.gov/about/offices/ofm.htm; or 
 
(3) Respondents may pay by certified check, bank cashier’s check, or 
United States postal money order, made payable to the Securities and 
Exchange Commission and hand-delivered or mailed to: 
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
the Respondent making the payment as a Respondent in these proceedings, and the file number 
of these proceedings; a copy of the cover letter and check or money order must be sent to 
Robert Cohen, Co-Chief, Market Abuse Unit, Division of Enforcement, Securities and 
Exchange Commission, 100 F St., NE, Washington, DC 20549. 
 
G. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction 
of any award of compensatory damages by the amount of any part of Respondents’ payment of 
civil money penalties in this action (“Penalty Offset”).  If the court in any Related Investor 
Action grants such a Penalty Offset, Respondents agree that they shall, within 30 days after 
entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action 
and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  Such a 
payment shall not be deemed an additional civil penalty and shall not be deemed to change the 
amount of the civil money penalties imposed in this proceeding.  For purposes of this paragraph, 
a “Related Investor Action” means a private damages action brought against a Respondent by or 
on behalf of one or more investors based on substantially the same facts as found in the Order. 
 
 
 
 
 
 
 

20 
 
H. It is further Ordered that, solely for purposes of exceptions to discharge set forth 
in Section 523 of the Bankruptcy Code, 11 U.S. C. §523, that the findings in the Order are true 
and admitted by Respondents, and further, any debt for disgorgement, civil penalty or other 
amounts due by Respondents under the Order or any other judgment, order, consent order, 
decree or settlement agreement entered in connection with this proceeding, is a debt for the 
violation by Respondents of the federal securities laws or any regulation or order issued under 
such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
 
By the Commission. 
 
 
 
Brent J. Fields 
Secretary 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

 

SECURITIES ACT OF 1933 

Release No. 10094 / June 13, 2016 
 

SECURITIES EXCHANGE ACT 1934 

Release No. 78043 / June 13, 2016 

 

INVESTMENT COMPANY ACT OF 1940 

Release No. 32144 / June 13, 2016 

 
ADMINISTRATIVE PROCEEDING 

File No. 3-16978 
 

 

ORDER MAKING FINDINGS AND 

IMPOSING REMEDIAL SANCTIONS 

AND A CEASE-AND-DESIST ORDER 

PURSUANT TO SECTION 8A OF THE 

SECURITIES ACT OF 1933, SECTIONS 

15(b) AND 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, AND 

SECTION 9(b) OF THE INVESTMENT 

COMPANY ACT OF 1940 
 

 

I. 
 

On December 3, 2015, the Securities and Exchange Commission (“Commission”) 

instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the 

Securities Act of 1933 (“Securities Act”), Sections 15(b) and 21C of the Securities Exchange 

Act of 1934 (“Exchange Act”), and Section 9(b) of the Investment Company Act of 1940 

(“Investment Company Act”) against Behruz Afshar (“Behruz”) and Richard F. Kenny, IV 

(“Kenny”), and instituted public administrative and cease-and-desist proceedings pursuant to 

Section 8A of the Securities Act and Section 21C of the Exchange Act against Shahryar Afshar 

(“Shahryar”), Fineline Trading Group LLC (“Fineline”), and Makino Capital LLC (“Makino”). 

 
II. 

 

Behruz, Shahryar, Kenny, Fineline, and Makino (collectively, “Respondents”) have 

submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept.

 

In the Matter of 
 

Behruz Afshar, Shahryar Afshar, 

Richard F. Kenny, IV, Fineline 

Trading Group LLC, and Makino 

Capital LLC, 
 

Respondents. 



2  

Solely for the purpose of these proceedings and any other proceedings brought by or on behalf 

of the Commission, or to which the Commission is a party, and without admitting or denying 

the findings herein, except as to the Commission’s jurisdiction over them and the subject matter 

of these proceedings, which are admitted, Respondents consent to the entry of this Order 

Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to 

Section 8A of the Securities Act of 1933, Sections 15(b) and 21C of the Exchange Act, and 

Section 9(b) of the Investment Company Act (“Order”), as set forth below. 

 
III. 

 

On the basis of this Order and Respondents’ Offer, the Commission finds that: 

 
SUMM ARY 

 

1. This case involves two fraudulent trading schemes by Behruz Afshar (“Behruz”) 

and his twin brother, Shahryar Afshar (“Shahryar”), and their close friend, Richard F. Kenny, 

IV (“Kenny”):  the mismarking of option orders to obtain “customer priority” and “spoofing” to 

generate liquidity rebates. The Afshars are sophisticated options traders and former registered 

representatives.  Kenny, during the relevant time period, was a registered representative at 

Lightspeed Trading, LLC (“Lightspeed”).  The Afshars and Kenny conducted the schemes 

through two Lightspeed accounts in the name of Fineline Trading Group LLC (“Fineline”) and 

Makino Capital LLC (“Makino”), limited liability companies which the Afshars owned. 

 

2. The first scheme involved the mismarking of option orders to take advantage of 

the benefits that certain exchanges provide to non-professional, public retail investors.  These 

exchanges, including the Chicago Board Options Exchange, the NYSE AMEX Options, the 

International Securities Exchange, and Nasdaq OMX PHLX (“PHLX”), require option orders 

from the accounts of public customers (not broker-dealers or market-makers) to be marked as 

either “customer” or “professional.” 

 

3. Orders marked “customer” have priority of execution over, and earn higher 

rebates and incur lower fees than, orders marked “professional” at the same price.  A non-

broker-dealer person or entity that places more than 390 orders in listed options per day (on 

average)—whether executed or not—on any listed options exchange during any calendar month 

in a quarter will be designated as a “professional” for the next quarter.  Conversely, a 

“customer” is a non-broker-dealer person or entity that does not exceed the 390-order threshold 

for each calendar month in a quarter. 

 
4. Despite far exceeding the 390-order threshold for every quarter from October 

2010 to December 2012, the Respondents were able to continually place “customer”-marked 

orders throughout this time period by shifting their trading operations on a quarterly basis 

between the accounts of Fineline and Makino.  When Fineline was designated as “professional” 

for an upcoming quarter, the Afshars’ trading operations transitioned that quarter to Makino’s 

account (designated as “customer”), essentially ceasing activity in Fineline’s account.  

Fineline’s inactivity would ensure that its account fell below the 390-order threshold, thereby 

achieving “customer” status for the next quarter, and thus enabling the trading to continue with 



3  

the benefits of “customer” designation for that subsequent quarter (while trading in Makino 

essentially ceased).   

 

5. The Afshars and Kenny accomplished this back-and-forth scheme through false 

representations to Lightspeed that Behruz had the sole beneficial interest in Fineline and that 

Shahryar had the sole beneficial interest in Makino, when in fact Behruz had a beneficial 

interest in both companies.  Kenny facilitated the movement of funds and trading operations 

between the accounts.  He also traded in the Afshars’ accounts, received a portion of their 

trading gains, and shared his commissions with the Afshars. 

 
6. By placing orders improperly marked as “customer,” the Respondents deceived 

several exchanges—wrongly avoiding over $2 million in transaction fees—and unfairly 

disadvantaged other market participants with orders that received execution priority. 

 

7. The second scheme involved manipulative trading known as “spoofing” to 

collect rebates from the PHLX.  During the relevant time period, the PHLX employed a 

“maker-taker” fee model that offered rebates for orders that provided—or “made”—liquidity 

(i.e., orders that are posted to the exchange’s order book before executing against a subsequent 

incoming order) and charged fees for orders that “took” liquidity (i.e., orders that execute 

immediately against previously-received, liquidity-providing orders). 
 

8. Between May 2011 and December 2012, the Respondents placed All-Or-None 

(“AON”) orders—undisplayed orders that must be executed in their entirety or not at all—in 

options on the PHLX to generate liquidity rebates.  The Respondents then placed smaller 

orders in the same option series and price as the larger AON orders, but on the opposite side of 

the market.  These small-lot orders, which were displayed, were not bona fide orders because 

they were not intended to be executed.  Instead, they were placed to alter the option’s best bid 

or offer (“BBO”) in order to induce, or “spoof,” other market participants into submitting 

orders at the new BBO, which would then execute against the AON orders.  Upon execution of 

those AON orders, any open displayed orders placed by the Respondents were cancelled. 

 

9. Because the executed AON orders existed prior to the entry of the other market 

participants’ orders, they were deemed to have added liquidity and, thereby, generated rebates. 

In contrast, the other market participants, induced into trading against the AON orders, were 

assessed a “take” fee.  As a result of this trading scheme, the Respondents’ accounts reaped 

over $204,000 in ill-gotten rebates. 

 

RESPONDENTS 
 

10. Behruz Afshar, age 45, of Chicago, IL, worked at Terra Nova Financial, LLC 

(“Terra Nova”), a registered broker-dealer, from February 1997 to August 2007.  While at Terra 

Nova, Behruz was the firm’s head trader, managing and supervising all trading operations of the 

broker-dealer.  Behruz was also associated with another registered broker-dealer from October 

2009 to December 2011.  In March 2008, Behruz started his own trading company, Fineline, 

which began trading through a master sub-account at Terra Nova.  During the relevant time 

period, Fineline traded through a master sub-account at Lightspeed.  Behruz employed traders 



4  

on an independent contracting basis to trade in Fineline’s sub-accounts.  Behruz held Series 3, 

4, 7, 24, 53, 55, and 63 licenses. 

 

11. Shahryar Afshar, age 45, of Chicago, IL, is the twin brother of Behruz and was 

a registered representative with Terra Nova from 1998 to 1999, and from March 2005 to 

October 2005, and with various other broker-dealers from 2000 to 2004.  In December 2010, 

together with Behruz and Kenny, Shahryar formed and took an ownership interest in Makino, 

which traded through a master sub-account at Lightspeed.  Makino utilized the same 

independent contracting traders as Fineline to trade in its sub-accounts.  Shahryar held Series 3, 

7, 55, and 63 licenses. 

 

12. Richard F. Kenny, IV, age 45, of Chicago, IL, was a registered representative 
at Terra Nova from 1996 to 1998 and from January 2005 until October 2010, when he became 
a registered representative at Lightspeed as a result of Lightspeed’s acquisition of Terra Nova. 

Kenny held Series 3, 7, 24, 55, and 63 licenses.  Kenny resigned from Lightspeed in December 
2013, due to his refusal to formally attest that he was not sharing his commissions with any 
customers or non-registered individuals.  On October 2014, FINRA filed a complaint against 

Kenny for repeatedly refusing to respond to informational requests in connection with its 
investigation of the Afshars’ trading activity.  In June 2015, FINRA issued a decision against 
Kenny for his failure to provide information and documents that would have identified the 

Afshars and bank accounts in their names or under their control.  FINRA’s decision, which 
became final in July 2015, barred Kenny from association with any FINRA member firm and 
ordered him to pay costs. 

 

13. Fineline Trading Group LLC is a Nevada limited liability company that 

Behruz formed in December 2007.  Fineline is a trading company through which Behruz, 

during the relevant time period, employed up to four independent contracting traders to trade in 

its sub-accounts.  Behruz and Kenny also traded in Fineline’s sub-accounts.  Behruz controlled 

and handled all of Fineline’s trading operations, risk management, and accounting. 

 

14. Makino Capital LLC is a Nevada limited liability company that Shahryar, 
Behruz, and Kenny formed in December 2010.  Makino utilized the same independent 

contracting traders as Fineline to trade in its master sub-account.  Shahryar, Behruz, and Kenny 
also traded in Makino’s sub-accounts.  Behruz controlled and handled all trading operations, risk 
management, and accounting for Makino. 

 

OTHER RELEVANT ENTITIES 
 

15. Lightspeed Trading LLC is a New York limited liability company that was 

formed in 1998.  Lightspeed is a broker-dealer registered with the Commission pursuant to 

Section 15(b) of the Exchange Act.  Lightspeed’s principal place of business is in New York, 

New York; the firm also has a branch office in Chicago.  Lightspeed, which acquired Terra 

Nova in 2010, is a member of FINRA and various exchanges. 

 

16. Third Rail Management, Inc. (“Third Rail”) is a Nevada S corporation that 
Kenny formed in 2008.  During the relevant time period, among other things, Third Rail’s 



5  

bank account facilitated monetary transfers between the checking accounts of Fineline and 
Makino. 

FINDINGS 
 

A. The Afshar Brothers and Kenny 
 

17. The Afshar brothers and Kenny are close friends.  They attended the same 

middle school and college, and had overlapping tenures at Terra Nova where Behruz was 
director of the firm’s trading operations, and where Kenny and Shahryar were registered 
representatives. 

 
18. In October 2010, Kenny became a registered representative at Lightspeed as a 

result of Lightspeed’s acquisition of Terra Nova.  Kenny, although a registered representative 
with Lightspeed, was considered an independent contractor or “external broker” of the firm. 

 
19. Kenny brought with him to Lightspeed some of the customer accounts he 

personally serviced while at Terra Nova, including his two largest customers, Behruz and 
Shahryar and their accounts, most notably, Fineline. 

 

20. During his tenure at Lightspeed, Kenny, as an “external broker,” was not 

required to work at the firm’s registered office in Chicago, but operated alongside Behruz at a 

trading desk they leased on one of the floors of the Chicago Stock Exchange, Inc.  Shahryar 

traded from his home or at one of the terminals at his brother’s and Kenny’s rented trading 

desk. 
 

21. Kenny helped Behruz form Fineline and Makino by filing the formation 

documents with the state of Nevada and serving as Fineline’s resident agent.  Kenny was also 

Fineline’s registered representative at Terra Nova (and later at Lightspeed) and Makino’s 

registered representative at Lightspeed, earning commissions on trades in their accounts.  

Kenny, along with Behruz, was also a signer on the companies’ checking accounts and a 

named cardholder of Fineline’s business credit card. 

 

22. During the relevant time period, Fineline and Makino employed at least 

four traders on an independent contracting basis to trade in the companies’ sub-accounts, 

using trading capital provided by the Afshars. 
 

23. Generally, a master sub-account is an account at a broker-dealer where a top-

level customer, in most instances a limited liability company or limited liability partnership, is 

allowed to have subordinate accounts for different trading activities.  These subordinate, or 

sub-, accounts are then typically used by individual traders or groups of traders. 

 

24. Three of the independent contracting traders of Fineline and Makino traded in 

the same office space in San Francisco, and the other trader was a friend of the Afshars who 

traded primarily alongside Behruz and Kenny at their trading desk. 

 

25. The master sub-account arrangement with portfolio margining afforded the 

traders increased “buying power” and leverage as each trader could trade on margin against the 



6  

value of the entire Fineline or Makino master account.  The traders agreed to split their 

respective net gains—which included the rebates earned on their trades—with the Afshars on a 

50-50 basis. 
 

26. Behruz oversaw all of the activity of the sub-account traders of Fineline and 

Makino on a real-time basis, kept track of their order counts, provided operational, risk-

management, and technological support, as well as access to trading software to place and 

route orders to specific exchanges.  Behruz also controlled and handled the traders’ capital and 

managed all accounting, including determining the sub-account traders’ payouts and expense 

reimbursements, and ensuring that the companies’ trading profits (after compensating the sub-

account traders) were split three ways—among himself, Shahryar, and Kenny. 
 

27. Behruz and Kenny also kept track of, on a monthly basis, the exchanges’ 

maker-taker pricing models and fee schedules and informed the sub-account traders of any 

changes. 

 

28. From October 2010 to December 2013, Kenny earned approximately $2 million 

in commissions, of which over $1.5 million was earned from the Afshars’ accounts.  Kenny 

shared those commissions with the Afshars and personally traded in the sub-accounts of both 

Fineline and Makino.  This conduct, which Kenny failed to disclose to Lightspeed, violated the 

broker-dealer’s written supervisory procedures. 

 
B. The “Professional” Order Type for Options 

 

29. A “professional order” is defined as an order for the account of a person or entity 

that:  (1) is not a broker or dealer in securities; and (2) places more than 390 orders in listed 

options per day—whether executed or not—on any listed options exchange on average during 

any calendar month of a quarter for its own beneficial account(s) (“390-order threshold”).  

Three hundred ninety orders is equal to the total number of orders that a person would place in a 

day if that person entered one order every minute from market open to market close. 

 
30. A “customer priority” order is defined as an order for the account of a non-

broker-dealer person or entity that falls below the 390-order threshold for each calendar month 
in a quarter. 

 
31. All orders for multiple accounts beneficially owned or controlled by the same 

person or entity, and all sub-accounts of a person or entity’s master account, must be 
aggregated when determining whether the 390-order threshold has been exceeded by that 

person or entity. 

 
32. A “customer priority” order is given priority of trade execution over 

“professional” and broker-dealer orders at the same price and, with few exceptions, does not 

incur any transaction fees and receives higher rebates (or pays lower fees) for adding (or 
removing) liquidity.  Options exchanges provide these benefits to customer priority orders to 
attract retail order flow and level the playing field for retail investors over market 

professionals. 
 



7  

33. Lightspeed coded orders as “customer” or “professional” based on a quarterly 

counting of its customers’ orders.  Orders from accounts with the same beneficial ownership 

(including all sub-accounts under a master account) were aggregated and totaled on a per-

month basis to determine whether an account exceeded the 390-order threshold.  Because 

trading activity was reviewed quarterly to determine whether orders for an account should be 

represented as “professional” or “customer,” a professional account one quarter can become a 

customer account next quarter, and vice versa, depending on the previous quarter’s order 

count. 

 

C. The “Customer-Priority” Scheme 
 

1. The Scheme Generally 
 

34. From at least December 2010 to December 2012, the Afshars and Kenny 

perpetrated a scheme to fraudulently maintain “customer”-designation of all the orders from the 

Afshars’ accounts without interruption despite their order counts at Lightspeed far exceeding the 

390-order threshold for every month during that time period. 

35. The scheme was accomplished by having the trading operations at Lightspeed 

alternate between the Fineline and Makino accounts each quarter, depending on which account 

was “customer”-designated, with the other “professional” account conducting little to no activity. 
 

36. Both Kenny and Behruz knew Lightspeed’s quarterly review procedures which 

required the aggregation of orders for all beneficially owned accounts (and their sub-accounts, 

if any existed).  Kenny also read industry guidance regarding the requirement to aggregate 

orders and the exchanges’ prohibition on avoiding the “professional” designation by spreading 

trading activity over multiple accounts. 

 
37. Typically, at the end of each quarter, Kenny or Behruz sought confirmation from 

Lightspeed that either the Fineline or Makino account would be designated as “professional” 

and that the other account would “come off pro” and revert back to “customer.” 

 

38. After receiving confirmation from Lightspeed that the mostly dormant 

“professional” account would return to “customer” status at the start of the next quarter, 

Behruz alerted the sub-account traders of their upcoming transition to a new account and 

required them to wind down any open positions.  Kenny ensured that the sub-account traders 

had trading authority and proper access credentials to seamlessly move between accounts.  He 

also assisted the Afshars in transferring sufficient trading capital between the two master sub-

accounts to enable the trading operations to continue without interruption. 

 

39. To avoid account aggregation, the Afshars and Kenny represented to Lightspeed 

that Behruz was the sole beneficial owner of the former, and Shahryar was the sole beneficial 

owner of the latter. 

 

40. In fact, Behruz had a beneficial interest in both Fineline and Makino.  Fineline’s 

account opening documents, signed by Behruz and submitted to Lightspeed, listed Behruz as 

the only individual with a beneficial interest in the company.  Fineline’s incorporation 



8  

documents also reflect that Behruz was the sole managing member of the company during the 

relevant time period. 
 

41. For Makino, Behruz controlled the trading in the account and shared in its 

profits. 
 

42. Had Lightspeed known that Behruz in fact controlled and managed both 

companies’ accounts and had a beneficial interest in Makino, or that both companies’ trading 

profits (after paying the sub-account traders) were divided among the Afshars and Kenny, 

the accounts of Fineline and Makino would have been marked “professional” for every 

quarter during the relevant time period. 

 
2. The Genesis and Intent of the Customer-Priority Scheme 

 

43. The scheme took shape in December 2010, when Behruz and Kenny, fully aware 

of the aggregation requirements of orders from beneficially owned accounts, explored ways to 

ensure that Fineline’s trading continued in a “customer”-marked account for the first quarter of 

2011.  Behruz and Kenny initially sought to open a new master sub-account at another broker-

dealer.  In mid-December 2010, Behruz forwarded to one of the sub-account traders an email 

from the other broker-dealer about the availability of a new master sub-account for trading by 

January 3, 2011, stating, “[b]elow is an email from my guy at the other BD we plan on trading 

soon….  In case you were wondering, we plan on having accounts open at multiple firms 

under different names so we can keep trading :).” 

 
44. The idea of opening an account at the other broker-dealer was abandoned when 

Lightspeed’s compliance department refused to approve Kenny’s dual association with the 
other broker-dealer. 

 

45. Behruz, Kenny, and Shahryar ultimately decided to form a new entity, Makino, 

named after a sushi restaurant in Las Vegas, Nevada that Shahryar frequented, open a master 

sub-account in its name at Lightspeed, and then make it appear that Makino was not 

beneficially owned by Fineline and/or Behruz.  As Behruz explained to a sub-account trader 

via instant message: 
 

Behruz: i’m always about the money, the problem that we face is 

Monday [January 3, 2011] we are Pro[fessional]…that doesn’t 

change 

Behruz: I was ready to have a customer account for [sic] to trade 

in as of last week, but some powers that may be came in and put 

some strain on that account so we had to go another route which 

will still accomplish our goal…. 



9  

Behruz: you should see all the s*** we’re doing here...too funny 

Sub-Account Trader: costume party? what do you mean? 

Behruz: opening bank accounts, trading accounts, etc …. 

Behruz: i think we have about 10 llc here all tied to sushi names 

Sub-Account Trader: LOL 
Sub-Account Trader: you and your fish man 

Sub-Account Trader: too funny 

Behruz: i’m not even the one that came up with these damn names 

Sub-Account Trader: haha who made em up 

Behruz: my bro and rich 

 

46. Kenny filed paperwork with the state of Nevada to form Makino on December 20, 2010.  

Those formation documents included Shahryar as the only principal of the company, despite the fact 

that Behruz and Kenny also had a beneficial interest in the company.  One week later, Kenny 

completed and submitted an application to Lightspeed for a new master sub-account for Makino.  That 

application, signed by Shahryar, falsely stated that Shahryar had the sole interest in Makino. 
 

47. Once Makino’s master sub-account was approved by Lightspeed in mid-January 2011, 

Fineline’s trading, with Behruz managing the operations and Kenny serving as the registered 
representative (and an unofficial sub-account trader), was able to continue as a “customer”—for the 
first quarter of 2011 in the new Makino account—and for all subsequent quarters in the relevant time 
period as those operations seamlessly alternated between the two accounts. 

 

48. By the fourth quarter of 2012, Behruz became frustrated with aggregating the sub-account 

traders’ orders for purposes of determining the 390-order threshold, and confided in a former colleague 

from Terra Nova that it was time to “kill the whole idea of having these master sub setups and having 

individual traders being just backed and they have to monitor their order counts.  That way we don’t – 

they don’t have to f***in’ bounce around” between Fineline and Makino. 

 
49. As a result, starting in January 2013, the Respondents’ plan was for each sub-account 

trader to establish their own LLC, open an account at Lightspeed in the name of that LLC in which 
to trade, and have Fineline “operate as we always have, but more as a lender of capital,” controller of 
all the “money flow,” and recipient of a split of the traders’ respective net gains.  “The idea,” as 

Behruz wrote, “[was] to function in a capacity where [Fineline] will not have beneficial ownership 
but will still be able to provide traders with the same service” and with trading capital.  Moreover, 
each trader had to “adhere to the 390 rule or else run the risk of being coded pro-customer.” 

  



10  

3. Specific Example of the Customer-Priority Scheme 
 

 
2011: 

50. The Respondents placed the following number of orders in the fourth quarter of 

 
 

Month 

 

Account Name 

Account 

Designation 

 

Aggregate Orders 

 

Daily Average 

October 2011 Fineline Trading Group LLC Customer 91,250 4,345 

 Makino Capital LLC Professional 78 4 

November 2011 Fineline Trading Group LLC Customer 76,916 3,663 

 Makino Capital LLC Professional 2 0.10 

December 2011 Fineline Trading Group LLC Customer 80,134 3,816 

 Makino Capital LLC Professional 0 0 
 

51. In anticipation of Fineline becoming designated as “professional” for the first quarter 

of 2012 based on the order counts above, Kenny began the process of re-activating the Makino sub-

accounts in late December 2011. 

 

52. On December 27, 2011, Kenny emailed a representative in Lightspeed’s accounts 

department requesting log-in credentials for the Makino sub-accounts.  In his email, Kenny falsely 

represented that only Shahryar would be trading in each of the sub-accounts and that Shahryar was 

the only member of Makino, attaching trade authorization forms signed by Shahryar listing only his 

name for each sub-account.  On December 30, 2011, Kenny received the log-in credentials. 
 

53. As part of ensuring a seamless transition of trading operations from Fineline to 

Makino for the start of the first quarter of 2012, Behruz transferred trading capital from Fineline to 

Makino through an entity owned by Kenny. 
 

54. On December 30, 2011, Behruz submitted a wire request to Lightspeed to transfer 

$420,000 from Fineline’s brokerage account to its checking account.  After receiving those funds, 

on the same day, Fineline’s checking account transferred $220,000 to a checking account in the 

name of Third Rail, an entity Kenny owned and which helped facilitate money transfers between 

Fineline and Makino, with the remaining $200,000 transferred to Makino’s checking account 

(increasing Makino’s account balance to over $400,000). 
 

55. On January 3, 2012, Third Rail transferred $200,000 to Makino’s checking account 

(increasing its account balance to more than $600,000).  Later that day, Makino transferred 

$600,000 to its brokerage account at Lightspeed and Kenny emailed the sub-account traders their 

respective log-in credentials received from Lightspeed’s accounts department to begin trading in 

the Makino sub-accounts. 

 
56. The next day, January 4, Third Rail’s checking account transferred $250,000 to 

Makino’s checking account, all of which Makino then transferred to its brokerage account at 

Lightspeed, providing additional trading funds. 



11  

 

57. Third Rail’s involvement in the transfers between Fineline and Makino was intended 
to avoid raising suspicions that the two companies were affiliated. 

 
58. The following shows the shifting of trading activity from Fineline’s account to 

Makino’s account (now “customer”) in the first quarter of 2012: 

 
 

Month 

 

Account Name 

Account 

Designation 

 

Aggregate Orders 
 

Daily Average 

January 2012 Fineline Trading Group LLC Professional 438 21 

 Makino Capital LLC Customer 97,122 4,625 

February 2012 Fineline Trading Group LLC Professional 16 0.8 

 Makino Capital LLC Customer 100,187 5,009 

March 2012 Fineline Trading Group LLC Professional 12 0.55 

 Makino Capital LLC Customer 107,232 4,874 
 

59. On March 29, 2012, Kenny requested, and received, confirmation from Lightspeed 

that Fineline’s designation would revert back to “customer” at the start of the second quarter based 

on the order counts above.  Later that day, Kenny requested that Lightspeed “expire” the Makino 

log-in credentials used by the sub-account traders and “enable” four Fineline log-in credentials, 

effective Monday, April 2, 2012, the first trading day of the next quarter. 

 

60. As part of transitioning the trading operations from Makino back to Fineline for the 

start of the second quarter of 2012, Makino transferred trading capital to Fineline.  On Friday, 

March 30, 2012, Makino requested a wire transfer of $730,000 from its Lightspeed account to its 

checking account.  On April 2, 2012, Makino transferred $500,000 and $80,000 to Third Rail’s 

and Fineline’s checking accounts, respectively, and Kenny emailed the sub-account traders their 

new log-in credentials for the re-activated Fineline sub-accounts.  On April 4, 2012, Third Rail 

transferred $300,000 to Fineline’s checking account.  Several days later, on April 9, 2012, 

Fineline transferred $400,000 to its Lightspeed account providing additional trading funds. 

 
4. The Deceived Parties of the Customer-Priority Scheme 

 

61. The “customer priority” scheme was intended to deceive the exchanges requiring 

option orders from public customers to be designated as either “customer” or “professional.”   On 

the basis of that order designation, the exchanges determined which orders received priority of 

execution and the amounts of all related transaction credits and debits, including liquidity rebates, 

“take” fees, transaction costs, and cancellation fees.  Lightspeed passed on the full amount of these 

credits and debits from the exchanges to the corresponding customers that placed the orders. 
 

62. As a result, the customer-priority scheme netted the Respondents’ accounts over 

$2 million in exchange fees avoided. 



12  

63. In addition, the scheme unfairly disadvantaged other professional market 

participants over whom the Respondents’ “customer” orders wrongly received priority of 

execution for orders at the same price.  Put another way, professional public customers placing 

orders at the same price as Respondents’ orders were harmed by the Respondents’ advantageous 

position of execution priority through the customer-priority scheme. 
 

64. The Respondents’ trading operations and the volume and frequency of their 

orders in no way resembled those of a non-professional, retail customer.  The Respondents 

undermined the purpose of the “professional”-order type, which was to level the playing field 

between public customers and professional traders, by wrongly claiming for themselves the 

benefits exchanges only offered to non-professional, public customers. 

 
D. The “Spoofing” Scheme 

 

1. The Scheme Generally 
 

65. Between May 2011 and December 2012, the Respondents engaged in “spoofing” 

to generate rebates from the PHLX, which was a maker-taker exchange at the time.  In general, 

spoofing describes a trader’s use of “non-bona fide” orders (i.e., orders that the trader does not 

intend to have executed) in a security on one side of the market, which affect the price and/or 

volume of that security, for the purpose of inducing other market participants to execute against 

the trader’s orders in the same security but on the opposite side of the market.  The spoofing 

employed by the Respondents focused on options in symbols that were eligible for rebates on 

the PHLX. 
 

66. The Respondents, or the sub-account traders under the Respondents’ direction 

and/or supervision, entered a series of nondisplayed AON orders to buy (or sell) options on the 

PHLX in these symbols at a price that was a penny more (or less) than the option’s current best 

bid (or offer).  AON orders are undisplayed orders to buy or sell securities that must be executed 

in their entirety, or not executed at all.  AON orders continue to remain active (and hidden) until 

they are executed or cancelled.  Because AON orders are undisplayed, their prices do not affect 

the national best bid or offer (“NBBO”). 
 

67. The Respondents, or the sub-account traders under the Respondents’ direction 

and/or supervision, then placed smaller, non-bona fide sell (or buy) orders—typically, for one 

contract (“a one-lot”)—on the PHLX (or a different exchange) at the same price as the AON 

orders, but on the opposite side of the market (the “small-lot orders”).  Because the size of the 

small-lot orders was less than the AON orders, those orders did not execute against each other. 

The small-lot orders, which were displayed, were placed for the purpose of lowering (or 

raising) the option’s best offer (or bid) by one penny in order to induce other market 

participants to send orders on the same side at that price level.  Once other market participants 

joined the small-lot order with sufficient quantity, their orders executed against the AON 

orders.  After the AON orders were filled, any open, non-bona fide, small-lot order was 

cancelled.  Typically, the strategy was repeated on the opposite side of the market to close out 

the position. 



13  

68. Because the AON orders were posted to the PHLX’s order book before executing 

against subsequently received orders, the PHLX credited them with having provided liquidity 

and paid rebates that Lightspeed passed on to the Afshars’ accounts.  Conversely, the orders 

from the other market participants, who were “spoofed” into executing against the pre-existing 

AON orders, were considered to have removed liquidity and charged a “take” fee by the 

PHLX. 
 

69. Once the PHLX removed their maker-taker pricing schedule for “customer”-
marked orders effective January 2013, the AON spoofing scheme came to an end, or as 
Behruz summed it up, “bye bye AON fun.”  As a result of this scheme, the Respondents’ 
accounts generated over $204,000 in rebates from the PHLX. 

 

70. The use of small-lot orders to spoof other market participants into executing 

against the non-displayed AON orders was described by Behruz as the “hidden X-A,” 

referring to the coding of orders that earned rebates from the PHLX (“X” for PHLX and “A” 

for adding liquidity) and described by Kenny as “bringing in the offer” (to fill AON buy 

orders) or “bringing in the bid” (to fill AON sell orders), as reflected in instant messages: 

 

Behruz: i love getting ‘em with the hidden x-a anyhow . . . bring 

me such pleasure and joy . . . at times I roll over laughing 

Sub-Account Trader: haha 

Sub-Account Trader: yes 
Sub-Account Trader: it’s a nice feeling 
Sub-Account Trader: I love it when I use nasd [to place the small-

lot order] to bring the bid/offer in and then get em 

 

------------------- 

 
Sub-Account Trader: did you see the [Microsoft trade] [last] 
month? 
Sub-Account Trader: yday 

Sub-Account Trader: no liquidity 

Kenny: i didn’t…you get some? 

Sub-Account Trader: but i offered em on phlx aon and brought the 
bid in on phlc [sic] 
Sub-Account Trader: i LOVE doin that lol … 

Kenny: that is the finest... bringing in the bid or offer 
Kenny: makes you feel proactive! 

Sub-Account Trader: makes me feel like i was smarter than 
the computer haha 

Kenny: true dat 



14  

2. A Specific Spoofing Example 
 

71. On October 15, 2012, between 9:52:50 and 9:52:54, Kenny himself placed twelve 

AON orders, each to sell ten call option contracts of Ford, with November 2012 expiration and a 

strike price of $11.00, for $.08 on the PHLX (for a total of 120 contracts). 
 

 At the time, the inside bid for this option series was $.07 and the inside offer was 

$0.09 and the bid size was over 2,400 contracts. 
 

 The AON orders did not change the national best offer because they were 

not displayed to other market participants. 

 

 Kenny placed the AON orders in one of the sub-accounts of Fineline, which was 

designated “customer” because its activity in the prior quarter fell below the 

390-order threshold. 
 

72. At 9:52:56, Kenny placed a one-lot order to purchase the same call option series 

in Ford for $0.08 on the PHLX from one of the sub-accounts of Makino, which at the time was 

designated “professional,” presumably to avoid raising any suspicions of a wash trade and to 

decrease the likelihood of an execution (due to the lower priority of “professional” orders). 
 

 The one-lot order raised the national best bid from $0.07 to $0.08—narrowing the 

NBBO spread from two cents ($0.07 x $0.09) to one cent ($0.08 x $0.09). At that 

one-cent spread, the bid size was only one contract—reflecting the one-lot order. 

 
 That order was guaranteed not to execute against the AON orders because 

the quantity of the AON orders exceeded the one-lot. 
 

 At 9:52:59, Kenny cancelled the one-lot order, which lowered the national best 

bid back to $0.07 (at which price the bid size was more than 2,300 contracts). 

 

73. At 9:56:01, Kenny placed another one-lot buy order at $0.08 in the same 
call option series. 

 
 The one-lot order increased the best bid to $0.08 (at which price the bid size was 

again one contract). 

 

 At 9:56:03, Kenny placed six more AON sell orders in the same call option series at 

$0.08 (increasing the AON sell orders to 180 total contracts). 

 
 Between 9:56:03 and 9:56:43, other market participants submitted buy orders at 

$0.08 in sufficient quantities to completely fill all eighteen AON orders. 
 

 At 9:56:43, all eighteen AON orders were executed, resulting in $46.80 in 

liquidity rebates for the Fineline account ($0.26 per contract). 



15  

 

 At 9:56:45, Kenny cancelled the open one-lot order, dropping the best bid back to 

$0.07. 

 

3. The Genesis and Intent of the Spoofing Scheme 

 

74. Behruz developed the scheme, sometimes referred to as “AON-ing,” or 

simply “AON,” after he observed non-marketable orders from the Afshars’ accounts—
which he believed were eligible for rebates upon their execution—executed immediately 
and were charged a “take” fee for removing liquidity.  After learning that the orders 

executed against hidden orders, Behruz began testing AON orders on the PHLX. 
 

75. Behruz later learned that “customer”-marked AON orders were not assessed 

cancellation fees by the PHLX (unlike “professional” AON orders).  This made the spoofing 

strategy economically viable because the Afshars’ accounts could post AON orders and cancel 

them without penalty if they were not filled.  As a result, in early May 2011, Behruz 

introduced the AON strategy to Kenny and the sub-account traders. 

 
76. On some occasions, Behruz and Kenny placed small-lot orders on the PHLX to 

assist the sub-account traders in filling their AON orders, typically using a different sub-account 
(or the account designated as “professional” at the time).  Kenny told one of the sub-account 
traders that “as far as AON goes, [Behruz] and i love to help. i love to positions [sic] get closed.” 

 

77. At times, the sub-account traders requested this assistance and other times, Behruz 

and Kenny proactively offered it.  For example, Kenny wrote one sub-account trader:  “that you 

AONing in MSFT? i’m gonna prop it up and get u filled” and, on another occasion, wrote: 

“lemme help you out.  load up your aons.”  Similarly, Behruz corresponded with a trader: 
 

Behruz:… I’d rather do the phlx aon on that and bring the offer in 

Sub-Account Trader: ok . . . 

Sub-Account Trader: 10 50 lots? 
Behruz: yes 
Sub-Account Trader: ok done 

Behruz: when you’re done we’ll cancel the 1 lot 

Behruz: that’s my offer 
Sub-Account Trader: k 
Behruz: come here kitty kitty 

Behruz: they are afraid :) 

 
4. The Victims of the Spoofing Scheme 

 

78. Market participants were deceived when they interpreted the small-lot orders as 

reflecting genuine demand or supply and joined those orders with hopes of offering liquidity and 

earning rebates.  Instead, their orders often executed against the hidden AON orders and resulted 

in “take” fees.  These market participants were deceived into executing against AON orders 

placed from the Afshars’ accounts at prices that had been artificially raised (or lowered) by those 

same accounts. 

 



16  

79. In fact, one market participant alerted the PHLX about being deceived by such 

trading.  On October 31, 2012, a trader at a registered broker-dealer, market-maker, and 

proprietary trading firm, notified her supervisor, the head of the firm’s U.S. options market 

making (“Head Trader #1”), that “[t]oday we saw in GE us remove large size on PHLX using 

quotes.  We join a 1-lot bid and end up removing liquidity via 10-lot trades (the 1-lot remains). 

Last time we saw this behavior the exchange verified that we had crossed with an ALL-or-

NONE order.  I am curious if it is the same case here and if the counterparty we execute 

against is the same firm that has a 1-lot bid in the depth.” 

 

80. Unbeknownst to the firm, on October 31, 2012, from 12:29:31 to 12:29:43, Kenny, 

in one of Fineline’s sub-accounts, placed twenty-four AON orders on the PHLX, each to sell ten 

contracts of GE (with November 2012 expiration and strike price of $22.00) for $0.07 (for a 

total of 240 contracts).  At the time, the inside bid for this option was $0.06 (with a size of 1,897 

contracts) and the inside ask was $0.08 (at 5,291 contracts).  At 12:29:47, Kenny, from one of 

Makino’s sub-accounts, placed a one-lot order on the PHLX to buy the same option at $0.07. 

That one-lot order raised the inside bid from $0.06 to $0.07 (with a bid size of one contract). 

 
81. In response to that price movement, at 12:34:38, the firm’s trading algorithm 

joined the one-lot order with an order to buy 130 contracts of the November 2012 GE option 
at $0.07 to provide liquidity at the new bid and potentially earn rebates.  However, rather than 
providing liquidity, the firm’s order immediately executed in full against thirteen of the 

preexisting twenty-four AON orders placed by Kenny.  The firm’s order thus removed 
liquidity and was charged a “take” fee by the PHLX.  At 12:36:36, Kenny cancelled the one-
lot order, moving the inside bid back to $0.06 (with a size of 602 contracts). 

 

82. Several hours later, after being informed of these findings, Head Trader #1 

emailed individuals at the PHLX about his concerns:  “[W]e have encountered some strange 

trading behavior recently on PHLX.  It appears like we are trading against hidden AON orders, 

and we believe that someone might be manipulating the market.  Here is one example from 

today that we found in GE, all timestamps are CST.  Before the trades happened the PHLX BBO 

was .07 bid at .08.  The volume on the .07 bid was 1 contract.  We tried to join the .07 bid for a 

size of 130 contracts, and we immediately traded 13 times, each trade was for 10 contracts.  We 

are particularly concerned that a market participant is entering an order to buy 1 contract at .07 

(not AON), and then they are layering many orders to sell at .07 using an AON contingency.” 

 

VIOLATIONS 
 

83. As a result of the conduct described above, Respondents Behruz Afshar and 

Kenny willfully violated Section 9(a)(2) of the Exchange Act, which makes it unlawful “to 

effect, alone or with one or more other persons, a series of transactions in any security . . . 

creating actual or apparent active trading in such security, or raising or depressing the price of 

such security, for the purpose of inducing the purchase or sale of such security by others.” 



17  

 

84. As a result of the conduct described above, Respondents Behruz Afshar and 

Kenny willfully violated Sections 17(a)(1), (2) and (3) of the Securities Act and Section 10(b) of 

the Exchange Act and Rules 10b-5(a), (b) and (c) thereunder, which prohibit fraudulent conduct 

in the offer and sale of securities and in connection with the purchase or sale of securities. 
 

85. As a result of the conduct described above, Respondents Shahryar Afshar, 

Fineline, and Makino violated Sections 17(a)(1), (2) and (3) of the Securities Act, 

Sections 9(a)(2) and 10(b) of the Exchange Act and Rules 10b-5(a), (b) and (c) 

thereunder. 

 

IV. 
 

In view of the foregoing, the Commission deems it appropriate, in the public interest, 
and for the protection of investors to impose the sanctions agreed to in the Respondents’ Offer. 

 

Accordingly, pursuant to Section 8A of the Securities Act, Sections 15(b) and 21C of the 

Exchange Act, and Section 9(b) of the Investment Company Act as to Respondents Behruz 

Afshar and Kenny, and Section 8A of the Securities Act and Section 21C of the Exchange Act 

as to Respondents Shahryar Afshar, Fineline, and Makino, it is hereby ORDERED that: 
 

A. Respondents cease and desist from committing or causing any violations and 

any future violations of Section 17(a)(1), (2) and (3) of the Securities Act, Sections 9(a)(2) and 

10(b) of the Exchange Act and Rules 10b-5(a), (b) and (c) thereunder. 
 

B. Respondents Behruz Afshar and Kenny be, and hereby are: 

 
barred from association with any broker, dealer, investment adviser, 
municipal securities dealer, municipal advisor, transfer agent, or 

nationally recognized statistical rating organization; 

 
prohibited from serving or acting as an employee, officer, director, 
member of an advisory board, investment adviser or depositor of, or 
principal underwriter for, a registered investment company or affiliated 

person of such investment adviser, depositor, or principal underwriter; 
and 

 

barred from participating in any offering of a penny stock, including: 

acting as a promoter, finder, consultant, agent or other person who 

engages in activities with a broker, dealer or issuer for purposes of the 

issuance or trading in any penny stock, or inducing or attempting to induce 

the purchase or sale of any penny stock. 



18  

 

C. Any reapplication for association by Respondents Behruz Afshar or Kenny will 

be subject to the applicable laws and regulations governing the reentry process, and reentry may 

be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or 

all of the following:  (a) any disgorgement ordered against Respondents Behruz Afshar or 

Kenny, whether or not the Commission has fully or partially waived payment of such 

disgorgement; (b) any arbitration award related to the conduct that served as the basis for the 

Commission order; (c) any self-regulatory organization arbitration award to a customer, 

whether or not related to the conduct that served as the basis for the Commission order; and (d) 

any restitution order by a self-regulatory organization, whether or not related to the conduct that 

served as the basis for the Commission order. 

 

D. Respondents Behruz and Shahryar Afshar shall pay disgorgement of 

$1,048,824.67, for which they shall be jointly and severally liable.  In addition, Behruz Afshar 

shall pay a civil money penalty of $150,000 and Shahryar Afshar shall pay a civil money penalty 

of $75,000.  Payments shall be made to the Securities and Exchange Commission for transfer to 

the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  

Payment shall be made in the following installments: 

 

(1) $666,666.67 within 10 days of entry of the Order; 
(2) $133,333.33 within 120 days of entry of the Order; 
(3) $133,333.34 within 240 days of entry of the Order; and 

(4) $340,491.33 within 360 days of entry of the Order. 

 

If any of these payments is not made by the date the payment is required by this Order, 

the entire outstanding balance of disgorgement and civil penalties, plus any additional interest 

accrued pursuant to SEC Rule of Practice 600 and pursuant to 31 U.S.C. §3717, shall be due and 

payable immediately, without further application. 
 

E. Respondent Kenny shall pay disgorgement of $524,412.33 and a civil money 

penalty of $100,000 to the Securities and Exchange Commission for transfer to the general fund 

of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  Payment shall be 

made in the following installments: 
 

(1) $333,333.33 within 10 days of entry of the Order; 

(2) $66,666.67 within 120 days of entry of the Order; 

(3) $66,666.66 within 240 days of entry of the Order; and 

(4) $157,745.67 within 360 days of entry of the Order. 
 

If any of these payments is not made by the date the payment is required by this Order, 

the entire outstanding balance of disgorgement and civil penalties, plus any additional interest 

accrued pursuant to SEC Rule of Practice 600 and pursuant to 31 U.S.C. §3717, shall be due and 

payable immediately, without further application. 



19  

F. Payments must be made in one of the following ways: 

 
(1) Respondents may transmit payment electronically to the 

Commission, which will provide detailed ACH transfer/Fedwire 

instructions upon request; 

 

(2) Respondents may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or 
 

(3) Respondents may pay by certified check, bank cashier’s check, or 

United States postal money order, made payable to the Securities and 
Exchange Commission and hand-delivered or mailed to: 

 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

the Respondent making the payment as a Respondent in these proceedings, and the file number 

of these proceedings; a copy of the cover letter and check or money order must be sent to 

Robert Cohen, Co-Chief, Market Abuse Unit, Division of Enforcement, Securities and 

Exchange Commission, 100 F St., NE, Washington, DC 20549. 

 

G. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 

be treated as penalties paid to the government for all purposes, including all tax purposes.  To 

preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 

Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction 

of any award of compensatory damages by the amount of any part of Respondents’ payment of 

civil money penalties in this action (“Penalty Offset”).  If the court in any Related Investor 

Action grants such a Penalty Offset, Respondents agree that they shall, within 30 days after 

entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action 

and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  Such a 

payment shall not be deemed an additional civil penalty and shall not be deemed to change the 

amount of the civil money penalties imposed in this proceeding.  For purposes of this paragraph, 

a “Related Investor Action” means a private damages action brought against a Respondent by or 

on behalf of one or more investors based on substantially the same facts as found in the Order. 

 

 

 

 

 

 

 



20  

H. It is further Ordered that, solely for purposes of exceptions to discharge set forth 

in Section 523 of the Bankruptcy Code, 11 U.S. C. §523, that the findings in the Order are true 

and admitted by Respondents, and further, any debt for disgorgement, civil penalty or other 

amounts due by Respondents under the Order or any other judgment, order, consent order, 

decree or settlement agreement entered in connection with this proceeding, is a debt for the 

violation by Respondents of the federal securities laws or any regulation or order issued under 

such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 

 

 

By the Commission. 

 

 

 

Brent J. Fields 

Secretary