Stock Broker Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
SEC v. Igors Nagaicevs, Case No. CV-12-0413 EDL (N.D. Cal. filed Jan. 26, 2012); In the Matter of Alchemy Ventures, Inc., KM Capital Management, LLC, Zanshin Enterprises, LLC, Mark H. Rogers, Steven D. Hotovec, Joshua A. Klein, Yisroel M. Wachs, Frank K. McDonald, and Douglas G. Frederick
SEC CHARGES LATVIAN TRADER IN PERVASIVE BROKERAGE ACCOUNT HIJACKING SCHEME
SEC Also Charges 12 Firms and Individuals For Extending Market Access Without Registering as Brokers
The Securities and Exchange Commission recently charged a trader in Latvia for conducting a widespread online account intrusion scheme in which he manipulated the prices of more than 100 NYSE and Nasdaq securities and caused more than $2 million in harm to customers of U.S. brokerage firms.
The SEC also instituted related administrative proceedings today against four electronic trading firms and eight executives charged with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets.
According to the SEC’s complaint filed in federal court in San Francisco, Igors Nagaicevs broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. This occurred on more than 150 occasions over the course of 14 months. Nagaicevs – using the direct, anonymous market access provided to him by various unregistered firms – traded those same securities at artificial prices and reaped more than $850,000 in illegal profits.
According to the SEC’s orders instituting administrative proceedings against the four electronic trading firms, they allowed Nagaicevs to trade through their electronic platforms without first registering as brokers. Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm’s name. These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.
The electronic trading firms and individuals named in the SEC’s administrative proceedings are:
- Alchemy Ventures, Inc. of San Mateo, Calif.
- Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
- Steven D. Hotovec, the firm’s vice president, who lives in Redwood City, Calif.
- KM Capital Management, LLC of Philadelphia
- Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia
- Yisroel M. Wachs, the firm’s co-owner, who lives in Philadelphia
- Zanshin Enterprises, LLC of Boise, Idaho
- Frank K. McDonald, managing member of the firm, who lives in Boise
- Richard V. Rizzo, an associate of the firm, who lives in Oceanside, N.Y.
- Mercury Capital of La Jolla, CA
- Lisa R. Hyatt, the firm’s president, who lives in Escondido, Calif.
- Douglas G. Frederick, an associate of the firm, who lives in Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they willfully committed or aided and abetted and caused violations of Section 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”). Hyatt and Rizzo each agreed to pay a $35,000 penalty.
The SEC’s administrative action will determine whether the non-settling trading firms and principals willfully violated Section 15(a) of the Exchange Act, or whether the non-settling principals willfully aided and abetted and caused violations of Section 15(a) of the Exchange Act, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.