Broker’s Scheme to Profit From Trading Apple Ends in DOJ/SEC Charges

Broker David Miller did not have inside information about the Apple earnings call scheduled for October 25, 2012. He did have something else – plans to profit from the announcement if the stock went up or down. In the end, however, the plan resulted in him pleading guilty to criminal charges, being named as a defendant in an SEC enforcement action putting his employer out of business. U.S. v. Miller, 3:12-mj-00288 (D. Mass.); SEC v. Miller (D. Mass. Filed April 15, 2013).

David Miller was employed as a registered representative at Rochdale Securities LLC. Mr. Miller and a customer of the firm crafted a plan to reap huge profits if the earnings announcement resulted in a price increase for Apple shares. The plan called for Mr. Miller to enter orders for 1,625,000 shares of Apple stock. If the price of Apple shares increased following the announcement of its earnings, the huge position would reap large profits. If the stock price went the other way the customer would disavow the trades, claiming that they were an error. The loss would then fall on the brokerage.

To implement this part of the plan Mr. Miller entered a series of orders for 125,000 shares of Apple stock for the customer over the course of the day on October 25, 2012 and in anticipation of the earnings announcement due after the close. As the orders were entered Mr. Miller assured the firm they were authorized by the customer. In total the orders were for $1 billion of Apple stock.

Mr. Miller also had another broker to enter a 500,000 share short position in Apple the same day. He convinced the broker to enter the order by making a series of misrepresentations in which Mr. Miller essentially claimed that he had accepted a position at another broker-dealer and that the firm was authorized the trade.

By the close of business Mr. Miller was set to profit regardless of the direction Apple’s share price. Following the announcement the share price declined. As planned the customer disavowed the $1 billion in purchases at Rochdale Securities. That firm suffered a $5.3 million loss, creating a net capital violation. Eventually Rochdale was forced to withdraw its registration statement. It is out of business. The second broker traded out of the short position, making a small profit.

In the criminal case Mr. Miller pleaded guilty to one count of conspiracy to commit wire and securities fraud and one count of wire fraud. In the SEC’s action, the complaint alleges violations of Exchange Act Section 10(b) and Securities Act Sections 17(a)(1) and (3).

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