South Florida Arbitration & Litigation Lawyer Blog
Securities and Exchange Commission v. Ronald Feldstein, Civil Action No. 13 Civ. 6168 (S.D.N.Y.)
SEC Charges Perpetrator of Fraudulent Free-Riding and Securities Offering Schemes
The Securities and Exchange Commission (“Commission”) recently filed a complaint in the United States District Court for the Southern District of New York charging Ronald Feldstein, Mara Capital Management LLC (“Mara Capital”), and Vita Health of America LLC (“Vita Health”), with orchestrating an illegal “free-riding” scheme resulting in over $2 million in losses to three broker-dealers, and charging Feldstein with bilking individual investors out of more than $450,000.
The Commission’s complaint alleges that Feldstein portrayed himself to broker-dealers as a money manager and opened three separate brokerage accounts in the names of two purported investment funds he created. Feldstein and his entities then engaged in illegal free-riding by purchasing stock through the broker-dealers with no intention of paying for the stock if its price declined substantially after the trade date. Unbeknownst to these broker-dealers, Feldstein and his entities did not have sufficient assets to pay for their purchases and instead intended to walk away from transactions unless they were able to make a corresponding profitable sale, and use those sales proceeds to pay for their purchases. In total, between September 2008 and February 2009, Feldstein, Mara Capital, and Vita Health’s broker-dealers suffered more than $2 million in losing trades.
According to the Commission’s complaint, Feldstein also induced investors to give him approximately $450,000, based upon his various false promises to use that money to (1) purchase stock for them in a certain penny-stock issuer; (2) invest in a fashion company’s initial public offering (“IPO”); and (3) invest in a hedge fund that Feldstein falsely described as substantial and successful. Feldstein never intended to purchase stock for these investors with this money, invest their money in an IPO, or invest their money in a hedge fund, and he never did so. Rather, he converted that money (much of which the investors had intended for retirement or their children’s education) for his own personal use.
The SEC’s complaint charges the defendants Ronald Feldstein, Mara Capital Management LLC, and Vita Health of America LLC with committing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and, as to Feldstein, Section 17(a) of the Securities Act of 1933. The Commission seeks injunctions from future violations of these provisions, disgorgement of ill-gotten gains against all defendants and relief defendant, Trademore Capital Management LLC, civil monetary penalties, and as to Feldstein, a penny stock bar.
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