U.S. securities regulators have settled with the former CEO of a brokerage firm amid allegations that supervisory failures helped hide a scheme that overcharged clients.

The U.S. Securities and Exchange Commission (SEC) announced that it has settled with the former CEO of subsidiaries of ConvergEx Group; the firm previously settled a case with the commission and the U.S. Department of Justice alleging that certain clients were systematically overcharged for trading securities. The firms have paid over US$100 million to settle the charges.

On Tuesday, he SEC filed a complaint against Craig Lax alleging that the ConvergEx subsidiaries under his control “engaged in a scheme that caused customers to pay substantially higher amounts than the disclosed commissions for buying and selling securities”by routing trading orders to an offshore affiliate in order to take hidden mark-ups and mark-downs.

The SEC alleged that Lax helped conceal the scheme by authorizing employees to temporarily suspend taking these profits when a customer asked for a certain report that could reveal the hidden charges; authorizing the use of a proprietary trading algorithm to hide the charges from a customer; and, that he ordered business cards falsely indicating that an offshore trader was actually located in New York.

In settling the SEC’s charges, Lax agreed to pay more than US$783,000 and to be barred from the securities industry for at least five years. Lax consented to the entry of a judgment, subject to court approval, permanently enjoining him from future violations. He also agreed to cooperate in the SEC’s ongoing investigation and pending litigation, against another ConvergEx CEO. The amount of any financial penalty to be imposed against Lax will be determined at a later date.

“Senior executives cannot permit deceptive practices by their subordinates,” said Stephen Cohen, an associate director in the SEC’s division of enforcement. “Lax not only condoned such conduct, but he specifically authorized practices that kept customers in the dark.”

When the firm settled its case back in 2013, it announced that the employees who engaged in the misconduct are no longer with the company, that its offshore trading desk was shut down, and that it had “significantly enhanced” its policies, procedures and controls. It also cooperated with the investigations, and stressed that the overwhelming majority of its clients were not affected.