More On Legal & Compliancefrom The Advisor's Professional Library
- Recent Changes in the Regulatory Landscape 2011 marked a major shift in the regulatory environment, as the SEC adopted rules for implementing the Dodd-Frank Act. Many changes to Investment Advisers Act were authorized by Title IV of the Dodd-Frank Act.
- Books and Records Rule Thorough and complete books and records enable RIAs to demonstrate that they have fulfilled their fiduciary obligations to clients and complied with applicable rules and regulations.
The Securities and Exchange Commission on Monday charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy nearly $1 billion in Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations.
David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC’s charges. He also pleaded guilty Monday in a parallel criminal case.
The SEC alleges that Miller misrepresented to Rochdale Securities that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion.
According to the SEC’s complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, with the company’s earnings announcement expected later that day. “His plan was to share in the customer’s profit from selling the shares if Apple’s stock price increased," the SEC says. "Alternatively, if Apple’s stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer’s order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.”
Daniel Hawke, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement that “Miller’s scheme was deliberate, brazen and ultimately ill-conceived. This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors.”
According to the SEC’s complaint, Apple’s stock price decreased after Apple’s earnings release was issued on Oct. 25. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase. “Rochdale then sold the Apple stock at an approximately $5.3 million loss, causing the value of the firm’s available liquid assets to fall below regulatory limits required of broker-dealers. Rochdale had to cease operations shortly thereafter,” the SEC said.
To settle the SEC’s charges, the commission said that Miller would be barred in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stock. In the partial settlement in court, the SEC said that Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws. A financial penalty will be determined at a later date by the court upon the SEC’s motion.
In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud. He will be sentenced on July 8.
The SEC’s investigation is continuing.
Read Top 10 Financial Scams: Products and Practices on AdvisorOne.