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Regulation and Compliance > Federal Regulation > SEC

SEC Charges 2 Brokers With Fraud Over Excessive Trading

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The Securities and Exchange Commission charged two brokers for recommending excessive levels of trading that were costly for retail customers but lucrative for the brokers.

In separate complaints filed in federal court in Manhattan, the SEC alleges that Florida resident Emil Botvinnik and New York resident Jovannie Aquino recommended frequent, short-term trades that generated large commissions for the brokers but were almost guaranteed to lose money for their customers.

According to the SEC’s complaints, Botvinnik’s and Aquino’s customers — a number of whom were at or near retirement age — lost approximately $3.6 million as a result of the trades while the brokers pocketed approximately $4.6 million in commissions.

“We are diligently pursuing deceitful brokers who prey on their customers,” said Antonia Chion, associate director in the SEC’s Division of Enforcement and chair of the Enforcement Division’s Broker-Dealer Task Force. “Brokers need to ensure that the level of trading they recommend is suitable for their customers, and investors should be on the lookout for frequent trading in their accounts.”

Both Botvinnik and Aquino were registered representatives at Meyers Associates LP — later known as Windsor Street Capital LP — at the time they engaged in the fraud the SEC alleges.

From June 2012 to November 2014, Botvinnik solicited at least five customers to open securities trading accounts at the firm where he was employed and assured them that he would employ a profitable trading strategy on their behalf.

Similarly, from December 2015 to November 2017, Aquino persuaded at least seven customers to maintain securities trading accounts with him at the firm and assured them that he would employ a profitable trading strategy on their behalf.

Both Botvinnik and Aquino recommended strategies to these customers that involved frequent, short-term trades, while charging them costly commissions and fees for each trade.

The frequency of Botvinnik’s and Aquino’s trading — coupled with the commissions and fees on every trade — made it almost certain that their customers would lose money from this strategy, according to the SEC.

The SEC alleges that the customers’ investments would need to achieve annual returns of approximately 21% to 406% just to pay for the transaction costs associated with Aquino’s trading strategy — or approximately 31% to 150% to pay for the transaction costs associated with Botvinnik’s recommendation.

The complaints also allege that both brokers engaged in unauthorized trading and concealed material information from their customers about the transaction costs associated with their recommendations, which were likely to outstrip any potential monetary gains in the accounts.

According to the SEC, Botvinnik’s fraudulent acts resulted in approximately $2.7 million in losses for the customers and $3.7 million in ill-gotten gains for Botvinnik. Whereas, Aquino’s fraudulent acts and omissions resulted in approximately $881,000 in losses for the customers and $935,000 in ill-gotten gains for Aquino.

The SEC’s complaints charge Botvinnik and Aquino with violations of antifraud provisions of the federal securities laws. They also order Botvinnik and Aquino to disgorge any ill-gotten gains and to pay prejudgment interest on those amounts.

— Check out Kevin Garnett Sues for Fraud Involving Tim Duncan’s Ex-Advisor on ThinkAdvisor.


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