SEC Accuses Money Manager of Defrauding Brokers with Free-Riding Scheme
The SEC filed suit against a money manager that it alleges defrauded three broker-dealers with a free-riding trading scheme. According to the SEC, the defendants established delivery versus payment accounts which allowed them to trade securities without cash. Then, the defendants refused to settle losing trades unless they could use profits from winning trades. The SEC charges that they caused more than $2 Million in losses.
OUR TAKE: This is not some new way to game the system. Based solely on the SEC’s description of the facts, the question is how the BDs allowed these traders to establish DVP accounts without further due diligence. It is also mystifying how the defendants expected to escape detection.