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U.S. prosecutors have charged a Canadian hedge fund trader with fraud, alleging he earned more than US$3-million by trading in advance of major clients’ trades.

Sean Wygovsky, 40, a Toronto resident, was arrested in Texas on Friday and faces criminal charges of securities fraud and wire fraud, each of which carries a maximum sentence of 20 years in prison if he’s convicted.

In addition to the charges filed by the U.S. Attorney’s Office for the Southern District of New York, Mr. Wygovsky faces a civil action filed by U.S. Securities and Exchange Commission, accusing him of fraud based on similar allegations.

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Russell Duncan, a lawyer for Mr. Wygovsky, did not immediately respond to requests for comment.

The SEC complaint does not identify Mr. Wygovsky’s employer, but according to LinkedIn and other online sources, he has worked for Polar Asset Management Partners, a Toronto-based hedge fund firm, since 2013. Polar is a “multi-strategy, arbitrage oriented” firm founded in 1991, its website says. The U.S. Attorney’s Office complaint says his firm has at least $19-billion in assets under management.

Polar spokesman Dan Gagnier said the company learned Friday about “disturbing allegations” against an employee.

“The alleged behaviour is inconsistent with the values that Polar has developed over its 30 year history. Polar is fully-cooperating with authorities,” he said in an e-mail.

Mr. Wygovsky is accused of conducting trades in the name of close relatives through accounts held in the United States, allegedly using confidential information about clients’ trades. He allegedly netted more than US$3.6-million in illegal profits, according to the U.S. Attorney’s Office.

According to the charges, Mr. Wygovsky had knowledge of large client orders that would be placed through his firm. When large quantities of shares are bought or sold, a stock’s share price sometimes increases or decreases slightly.

On more than 700 occasions, Mr. Wygovsky allegedly took advantage of these small changes in price by buying or selling the same stock in five different brokerage accounts maintained by his relatives before the client order was executed. Then, after the clients’ orders were placed, Mr. Wygovsky would allegedly sell the holdings at a profit, according to U.S. Attorney’s Office.

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On some occasions, Mr. Wygovsky allegedly made the trades in both his relatives’ and his clients’ accounts. Internet protocol records show that his relatives’ accounts had been accessed from places he had been travelling, according to the U.S. Attorney’s Office.

Between 2015 and 2020, Mr. Wygovsky’s relatives allegedly wrote him cheques for hundreds of thousands of dollars.

“As alleged in our complaint, Wygovsky abused his position and his employer’s trust by front-running the very securities transactions that he was tasked with executing for his employer’s advisory clients,” Joseph Sansone, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a news release.

According to a 2016 profile published by Institutional Investor, Mr. Wygovsky grew up in New Jersey and attended the University of Richmond in Virginia. He worked at New York firms TIAA-CREF, Exis Capital Management and Tiger Management Corp. before moving to Polar Asset Management Partners as a partner, trader and portfolio manager in 2013, the profile said.

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