The U.S. Securities and Exchange Commission charged 38 defendants for involvement in a series of fraudulent schemes involving phoney finder fees and illegal kickbacks in the “stock loan” industry.

The defendants include 17 current and former “stock loan” traders employed at several major Wall St. brokerage firms. The SEC alleges the traders conspired in various schemes with 21 purported stock loan “finders” to skim profits on stock-loan transactions. It also claims that the defendants pocketed more than US$12 million from their unlawful schemes over a period of nearly a decade.

In two separate complaints filed in federal court in Brooklyn, N.Y., the SEC alleges that from 1998 until June 2006, the stock loan traders routinely defrauded the brokerage firms that employed them and others by engaging in collusive loan transactions and causing the firms to pay sham finder fees to companies controlled by the traders themselves or by their friends and relatives.

Acting as fronts for the traders, the companies received hefty finder fees on several thousand stock-loan transactions, even though they did not provide any legitimate finding services and, in many cases, were simply shell companies that were not even involved in the stock loan business, the SEC said.

The allegations have not been proven. The commission’s complaints seek permanent antifraud injunctions, disgorgement of illegal profits with prejudgment interest and civil monetary penalties. Additionally, the U.S. Attorney’s Office for the Eastern District of New York has filed parallel criminal charges against 16 of the individuals named in the SEC’s complaints. Ten have entered guilty pleas.

“The defendants in these cases devised a host of brazen schemes to enrich themselves and others at the expense of firms engaged in securities lending transactions,” said Linda Thomsen, director, SEC division of enforcement.

“The commission will respond forcefully to misconduct in the securities industry, whether it occurs on Wall St. or Main St. and whether it is committed by individuals or large firms.”