Infinium Capital Management LLC, a Chicago-based high-frequency trading firm, was sued by former employees who claim they were tricked into swapping loans to a company affiliate for equity, causing them to lose $4 million.
The defendants, including six of the company’s executives, failed to disclose to the employees Infinium’s true financial condition, including executive redemption obligations that wiped out the 31 workers’ investments, according to a complaint filed in federal court in Chicago on Jan. 7.
The omissions were designed to shift “an excessive share of the risk of loss,” to those who joined what was called the employee capital pool program the ex-workers claim. Had the firm’s executives been candid, “plaintiffs would not have converted their loans to Infinium to equity or otherwise participated” in the program, according to the suit.
“It sounds like they ran into a brick wall like a lot of the other guys,” Larry Tabb, chief executive officer of market-research firm Tabb Group LLC, said today in an interview. The cost of high-frequency trading is rising while there’s more competition with improved broker and market-maker algorithms, he said. At the same time, the volume of trading and the volatility the traders seek to make money on is declining, Tabb said.
Earnings by high-frequency outfits from stock trading fell to about $1 billion in 2012 from about $5 billion in 2009, according to data from Rosenblatt Securities Inc. On its website, Infinium says it trades and makes markets electronically, on exchange floors and over the counter, 23 1/2 hours a day, six days a week.
Tabb said Infinium was a top-25 high-frequency firm.
Firm President Mark Palchak, who isn’t a defendant in the case, didn’t immediately reply to a telephone message seeking comment on the former workers’ allegations. There was no reply to an e-mailed request for comment sent to Infinium’s general mailbox.
The workers, one of whom had loaned Infinium $600,000, another who advanced $550,000, all participated in the capital pool, according to the complaint.
They accuse the businesses and the individual defendants of securities fraud, breach of fiduciary duty and common law fraud. They seek return of their lost money, plus interest and punitive damages.
The case is Bojan v. Infinium Capital Holdings LLC, 14-cv-00098, U.S. District Court, Northern District of Illinois (Chicago).