Dual Registrant Settles SEC Charges for Shifting Trading Losses

A dually registered representative settled SEC charges for covering personal account trading losses by rebilling the unprofitable trades to client accounts.

In a cease-and-desist Order, the SEC found that the representative's unprofitable trading in his personal trading account "resulted in substantial margin calls." The SEC stated that the representative, "covered some of his trading losses and satisfied ... some of his margin calls" by directing his firm to cancel losing trades and rebill them to client accounts. The SEC found that the representative submitted 30 such trade corrections, falsely claiming the trades had been placed "in the wrong account." The SEC said that the 30 transferred securities purchases resulted in "almost $1.3 million in unrealized trading losses" to client accounts. 

The SEC charged the representative with violating SA Section 17(a) ("Fraudulent Interstate Transactions"); SEA Section 10(b) ("Regulation of the Use of manipulative and deceptive devices"); SEA Rule 10b-5 (" Employment of manipulative and deceptive devices") and Exchange Act Sections 206(1) and 206(2) ("Prohibited transactions by investment advisers"). 

To settle the charges, the representative consented to (i) an Order prohibiting future violations of the antifraud provisions, (ii) a permanent bar from association with any broker-dealer, investment adviser, or other regulated entity, (iii) a penny stock bar, (iv) a prohibition on serving in any capacity with a registered investment company or its affiliates, and (v) the payment of $1,291,491 in disgorgement, $184,681 in prejudgment interest, and a $195,000 civil penalty.