LAWFUEL – Investment & Legal – SEC Sues Foreign Trader for Fraudulent Account Intrusion Scheme to Control Prices at Which He Purchased and Sold Options
The Securities and Exchange Commission today announced the filing of a complaint in the United States District Court for the Southern District of New York against Anatoly Russ, a Russian citizen. The Commission’s complaint alleges Russ engaged in a fraudulent scheme to control the prices at which he purchased and sold options on an Exchange Traded Fund (ETF) by placing unauthorized orders in online brokerage accounts designed to match orders in his own account.
The complaint further alleges that between August 23, 2006, and September 19, 2006, Russ electronically stole and used usernames and passwords to gain unauthorized Internet access to online brokerage accounts for the sole purpose of entering purchase or sell orders that were executed opposite orders that he had placed in his own online accounts. Russ engaged in a pattern of purchasing four series of thinly traded options contracts on iShares Lehman Aggregate Bond Fund (AGG) and subsequently selling the contracts the same day at inflated prices that did not reflect the true economic value of the options contracts. More specifically, the complaint alleges that Russ placed orders to buy AGG options contracts in his own online trading accounts at low prices. Around the same time, without the accountholders’ knowledge and using the victims’ own funds, Russ also purchased AGG options contracts in the intruded accounts. Russ then placed orders to sell the AGG options contracts in the intruded accounts matching the orders entered in his accounts. Once the trades were executed, Russ placed orders to sell the options contracts in his accounts at inflated prices, and placed matching orders to buy the options contracts in the intruded accounts.
The complaint alleges that since AGG options were so thinly traded, Russ was able to control the prices at which he purchased and sold the options, allowing him to earn guaranteed profits – sometimes as high as sixteen-times the prices at which he had purchased the options contracts. As a result of his fraudulent scheme, Russ realized at least $88,465 in unlawful profits and caused losses of at least $339,929 in the intruded online accounts. The online brokers have made the intruded accountholders whole by taking the losses themselves.
The Commission’s complaint alleges Russ violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctive relief, disgorgement of all ill-gotten gains, prejudgment interest, and civil penalties.
The Commission’s Office of Investor Education and Advocacy has previously issued an investor alert, available on the Commission’s website, which provides tips for avoiding becoming a victim of an online intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm