Washington, D.C., Jan. 26, 2012 – The Securities and Exchange Commission today charged a trader in Latvia for conducting a widespread online account intrusion scheme in which he manipulated the prices of more than 100 NYSE and Nasdaq securities and caused more than $2 million in harm to customers of U.S. brokerage firms.
The SEC also instituted related administrative proceedings today against four electronic trading firms and eight executives charged with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets.
According to the SEC’s complaint filed in federal court in San Francisco, Igors Nagaicevs broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. This occurred on more than 150 occasions over the course of 14 months. Nagaicevs – using the direct, anonymous market access provided to him by various unregistered firms – traded those same securities at artificial prices and reaped more than $850,000 in illegal profits.
“Nagaicevs engaged in a brazen and systematic securities fraud, repeatedly raiding brokerage accounts and causing massive damages to innocent investors and their brokerage firms,” said Marc J. Fagel, Director of the SEC’s San Francisco Regional Office.
According to the SEC’s orders instituting administrative proceedings against the four electronic trading firms, they allowed Nagaicevs to trade through their electronic platforms without first registering as brokers. Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm’s name. These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.
“These firms provided unfettered access to trade in the U.S. securities markets on an essentially anonymous basis,” said Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit. “By failing to register as brokers, the firms and principals in this case exposed U.S. markets to real harm by evading crucial safeguards of the federal securities laws. We will not allow firms like these to fly under the radar and become safe havens for market abuse.”
The electronic trading firms and individuals named in the SEC’s administrative proceedings are:
Alchemy Ventures, Inc. of San Mateo, Calif.
Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
Steven D. Hotovec, the firm’s vice president, who lives in Redwood City, Calif.
KM Capital Management, LLC of Philadelphia
Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia.
Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia.
Yisroel M. Wachs, the firm’s co-owner, who lives in Philadelphia.
Zanshin Enterprises, LLC of Boise, Idaho
Frank K. McDonald, managing member of the firm, who lives in Boise.
Richard V. Rizzo, an associate of the firm, who lives in Oceanside, N.Y.
Mercury Capital of La Jolla, Calif.
Lisa R. Hyatt, the firm’s president, who lives in Escondido, Calif.
Douglas G. Frederick, an associate of the firm, who lives in Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they committed or aided and abetted and caused broker registration violations. Hyatt and Rizzo each agreed to pay a $35,000 penalty.
The SEC’s administrative action will determine whether the non-settling trading firms and principals violated the broker registration provision of the federal securities laws, or whether the non-settling principals aided and abetted and caused the firms’ violations, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.
The SEC’s Market Abuse Unit, headed by chief Daniel M. Hawke and deputy chief Sanjay Wadhwa, conducted the investigation in this matter jointly with the agency’s San Francisco Regional Office under the leadership of Director Marc J. Fagel and Associate Director Michael S. Dicke. Jina L. Choi and Steven D. Buchholz – members of the Market Abuse Unit in San Francisco – together with Alice Jensen of the San Francisco Regional Office conducted the agency’s investigation, which is ongoing. The SEC’s litigation effort will be led by Lloyd A. Farnham and John S. Yun of the San Francisco Regional Office.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they committed or aided and abetted and caused broker registration violations. Hyatt and Rizzo each agreed to pay a $35,000 penalty.
The SEC’s administrative action will determine whether the non-settling trading firms and principals violated the broker registration provision of the federal securities laws, or whether the non-settling principals aided and abetted and caused the firms’ violations, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.
The SEC’s Market Abuse Unit, headed by chief Daniel M. Hawke and deputy chief Sanjay Wadhwa, conducted the investigation in this matter jointly with the agency’s San Francisco Regional Office under the leadership of Director Marc J. Fagel and Associate Director Michael S. Dicke. Jina L. Choi and Steven D. Buchholz – members of the Market Abuse Unit in San Francisco – together with Alice Jensen of the San Francisco Regional Office conducted the agency’s investigation, which is ongoing. The SEC’s litigation effort will be led by Lloyd A. Farnham and John S. Yun of the San Francisco Regional Office.
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