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April 28, 2017 at 06:10 AM
The Securities and Exchange Commission charged a former broker with knowingly or recklessly trading unsuitable investment products in the accounts of five customers and misappropriating more than $170,000 from one of those customers.
The SEC’s complaint alleges that Demitrios Hallas repeatedly traded unsuitable investments in his customers’ accounts, exposing customers who were unsophisticated with limited or no investing experience and modest incomes, net worth levels and assets to a significant degree of volatility and risk.
In a little more than a year, Hallas allegedly traded 179 daily leveraged exchange-traded funds (ETFs) and exchange-traded notes (ETNs) – products that the SEC alleges are inherently risky, complex and volatile, and only appropriate for sophisticated investors – in the customers’ accounts, generating commissions and fees of approximately $128,000.
The net loss across all 179 positions was approximately $150,000. The SEC’s complaint further alleges that Hallas misappropriated more than $170,000 in funds from one customer. Instead of investing the funds on the customer’s behalf, Hallas allegedly deposited the funds into his own personal bank accounts and spent them on personal expenses, including significant bar and restaurant bills, credit card and student loan payments, and rent.
“As alleged in our complaint, Hallas enriched himself by systematically disregarding his customers’ investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them,” said Andrew M. Calamari, director of the SEC’s New York Regional Office and Co-Chair of the Enforcement Division’s Broker Dealer Task Force. “As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them.”
The SEC’s complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.
The SEC previously issued an Investor Alert warning about excessive trading and churning that can occur in brokerage accounts, and an Investor Bulletin educating investors about ETNs and the risks associated with them.
Portfolio Manager Charged With Diverting Nearly $2 Million to Personal Account
The SEC announced fraud charges against a Massachusetts-based portfolio manager accused of diverting at least $1.95 million to his personal brokerage account from a fund over which he had trading authority.
The SEC’s complaint alleges that Kevin J. Amell carried out a fraudulent matched-trades scheme in which he prearranged the purchase or sale of call options between his own account and the brokerage accounts of the fund at prices that were disadvantageous to the fund and advantageous to him. In one series of trades involving Amazon securities, for example, Amell allegedly generated a $23,000 profit for himself in less than 23 minutes at the fund’s expense.
In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts filed criminal charges against Amell.
The SEC is seeking disgorgement of Amell’s ill-gotten gains plus interest and penalties as well as injunctions.
SEC Accuses Risk Management Professional of Insider Trading
The SEC charged a vice president in the risk management department of a New York-based investment bank with insider trading on confidential information he learned in advance of a private equity firm’s acquisition of a publicly traded technology company.
The SEC alleges that Avaneesh Krishnamoorthy learned that Golden Gate Capital planned to acquire Neustar Inc., and he then began trading in Neustar securities. The trading took place in two brokerage accounts that Krishnamoorthy allegedly kept hidden from his employer, which had been approached by Golden Gate Capital to finance the transaction.
