The SEC alleges that Ronald Feldstein caused more than $2 million in losses for the brokerage firms that he victimized in the free-riding scheme, which occurs when customers buy or sell securities in their brokerage accounts without having the money or shares to actually pay for them. Feldstein opened three separate brokerage accounts in the names of two purported investment funds that he created. He had no intention to pay for the stocks that he purchased if they resulted in big losses. Feldstein planned to walk away from any transactions where the price declined substantially after the trade date, and planned to use sales proceeds to pay for the purchases if the price of a stock increased.
The SEC further alleges that Feldstein later began soliciting investments by targeting owners of businesses that he had frequented for decades, including a dry cleaner and a car leasing and servicing company. Feldstein convinced them to provide funds for him to invest on their behalf, promising such profitable opportunities as a successful hedge fund, a promising penny stock, and an initial public offering (IPO) of a fashion company. However, Feldstein never invested this money, instead converting it for his personal use without their knowledge.
“Without sufficient assets to pay for his stock purchases, Feldstein illegally arranged trades in which he got the profits if he won and left brokerage firms holding the bag if he lost.”The complaint does not address how this scheme was discovered, or why the free-riding scheme went undetected for any period of time. Brokerage firms have the obligation to detect free-riding and to take steps to prevent such activities. My firm has the experience to assist firms in creating such compliance systems, as well as assisting firms, and investors, in recovering losses from fraudulent investment practices.
-Andrew M. Calamari, Director of the SEC’s New York Regional Office.
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SEC.gov | SEC Charges Purported Money Manager With Defrauding Investors and Brokerage Firms