Wall Street Firms Under Investigation for Treatment of Retail Investors

Authorities sent subpoenas to several firms in connection with probe into the handling of retail clients’ orders

Federal and state authorities are investigating whether Wall Street firms that handle millions of orders annually for retail clients have lived up to their obligation to provide the best possible treatment for those investors, according to people familiar with the matter.

The Justice Department’s civil division has sent subpoenas to several firms including Citadel Securities, the market-making business of Citadel LLC, and KCG Holdings Inc. in connection with the probe, these people said.

The New York attorney general’s office is also conducting a broad investigation into practices that may create an unfair disadvantage for retail investors whose stock orders are handled by electronic market makers, and has sent a subpoena to Citadel and other firms, one of the people said.

The federal subpoenas are issued under a civil fraud law, the Financial Institutions Reform, Recovery and Enforcement Act, or Firrea, which covers fraud affecting federally insured financial institutions, the people said.

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