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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Ex-Janney Rep With Running $9.6M Market Manipulation Scheme

By Jeff Berman

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What You Need to Know

  • The former broker allegedly orchestrated a market manipulation scheme from at least September 2015 to October 2020.
  • He allegedly used at 18 or more securities accounts at 14 different brokerage firms to artificially influence the market prices of more than 2,000 securities.
  • The scam started after he left Janney in March 2013.

The Securities and Exchange Commission charged a former broker with running a multi-million dollar market manipulation scheme in which he made coordinated trades between multiple accounts owned by him and his wife at different brokerage firms over the course of at least five years.

James David O’Brien, 50, of Gibbsboro, New Jersey, allegedly made over $9.6 million in net profits from his successful coordinated trading events, the SEC said.

In a complaint filed on Thursday in the U.S. District Court for the Southern District of New York, the SEC alleged O’Brien orchestrated the fraudulent scheme to artificially influence the market prices of more than 2,000 exchange-traded securities via 18 or more securities accounts with 14 different brokerage firms.

According to the complaint, from at least September 2015 to October 2020, O’Brien coordinated trading in at least two different accounts to create the false appearance of trading interest and activity in particular stocks that then enabled him to buy stocks at artificially low prices and quickly sell them at artificially high prices.

Prior to the scheme, O’Brien was registered as a broker with Janney Montgomery Scott from April 2006 until March 2013 and did not become registered with another Financial Industry Regulatory Authority-affiliated firm after that, according to his report on FINRA’s BrokerCheck website.

How the Scheme Worked

The SEC states that O’Brien allegedly accumulated larger stock positions in one or more “winner” accounts at one brokerage firm, while at/or around the same time placing smaller orders in the same securities on the opposite side of the market in one or more “helper” accounts at a different brokerage firm.

O’Brien allegedly used the helper account trades to decrease the price of the security before he acquired it in the winner accounts, and/or to increase the price of the security after he acquired it in the winner accounts, looking to generate a net profit across all the involved accounts.

According to the complaint, O’Brien engaged in more than 18,000 of those coordinated trading events, with about 75% of the events resulting in net profits across the involved accounts.

The SEC charged O’Brien with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains and prejudgment interest, and civil penalties.

The report did not specify why O’Brien left Janney and the firm did not give a reason why on Monday, declining to comment on the charges its ex-broker faces.

(Photo: Michael Nagle/Bloomberg)

Jeff Berman

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