Commission Files Another Free Riding Case
Free riding is often, but not always, a profitable but prohibited endeavor for traders. The practice is based on defrauding brokers by opening an account, funding it with money to come from another account of the trader which lacks funds, and then quickly placing trades using the money of the broker to pay for the trades and close them before the broker learns that the trader’s other account is empty. One recent example of this type of scheme is SEC v. Arbab, Civil Action No. 1:02 mi. 99999 (N.D. Ga. October 31, 2022). There the trader had substantial profits. In contrast, in SEC v. Phan, Civil Action No. 4:22-cv-001 (M.D. Ga. Filed September 22, 2022) two brothers suffered losses. The Commission’s most recent case in this area ultimately ended with no loss or profit for the trader who at one point had over a million dollars in profits. SEC v. Anthony (M.D. N.C. Filed August 25, 2023).
Defendant Deyonte J. Anthony, an employee of various fast food restaurants, implemented the free riding scheme here. On July 1, 2022, Defendant opened a new account with Broker A. He falsified his personal finances in the opening materials, claiming to have $25,000 and $50,000. In reality, he had at times a small income from the various fast foods places where he at times held a job. For example, in his most recent job he worked four shifts totaling 21 hours. He earned $333.09. Shortly thereafter he was terminated for not showing up for work.
Mr. Anthony opened a “self-invest” account with Broker A. The firm made available $200,000 in “immediate access” credit for pending deposits. These types of accounts are also limited to $500,000 in automated clearinghouse or ACH deposits per day. The accounts are subject to a seven-day hold before withdrawals are permitted.
When the account at Broker A was opened, Defendant had a separate bank account at Bank A that had a balance of $0.09. He also had an account at Bank B with that had a balance of $13.26.
Subsequently, Defendant used his personal phone to initiate five ACH deposits on-line totaling $1 million from his Bank A account. The deposits went to Broker A. Shortly thereafter he made two unfunded deposits of about $500,000. Those transactions were followed by using the “immediate access credit from Broker A to make a deposit of almost $200,000 in securities purchased through Broker A’s on-line trading application.
When Broker A learned about the transactions his firm immediately froze them. Ultimately the transactions were liquidated, yielding a net profit of $7,127.25. Defendant did not have any profits. Broker A escaped with no losses. The complaint alleges violations of Exchange Act Section 10(b).
Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Section cited in the complaint . In addition, the injunction imposes restrictions on future brokerage activities. A penalty will also be imposed in an amount to be determined iin the futures. See Lit. Rel. No. 25816 (August 28, 2023).
Commission Files Another Free Riding Case
Free riding is often, but not always, a profitable but prohibited endeavor for traders. The practice is based on defrauding brokers by opening an account, funding it with money to come from another account of the trader which lacks funds, and then quickly placing trades using the money of the broker to pay for the trades and close them before the broker learns that the trader’s other account is empty. One recent example of this type of scheme is SEC v. Arbab, Civil Action No. 1:02 mi. 99999 (N.D. Ga. October 31, 2022). There the trader had substantial profits. In contrast, in SEC v. Phan, Civil Action No. 4:22-cv-001 (M.D. Ga. Filed September 22, 2022) two brothers suffered losses. The Commission’s most recent case in this area ultimately ended with no loss or profit for the trader who at one point had over a million dollars in profits. SEC v. Anthony (M.D. N.C. Filed August 25, 2023).
Defendant Deyonte J. Anthony, an employee of various fast food restaurants, implemented the free riding scheme here. On July 1, 2022, Defendant opened a new account with Broker A. He falsified his personal finances in the opening materials, claiming to have $25,000 and $50,000. In reality, he had at times a small income from the various fast foods places where he at times held a job. For example, in his most recent job he worked four shifts totaling 21 hours. He earned $333.09. Shortly thereafter he was terminated for not showing up for work.
Mr. Anthony opened a “self-invest” account with Broker A. The firm made available $200,000 in “immediate access” credit for pending deposits. These types of accounts are also limited to $500,000 in automated clearinghouse or ACH deposits per day. The accounts are subject to a seven-day hold before withdrawals are permitted.
When the account at Broker A was opened, Defendant had a separate bank account at Bank A that had a balance of $0.09. He also had an account at Bank B with that had a balance of $13.26.
Subsequently, Defendant used his personal phone to initiate five ACH deposits on-line totaling $1 million from his Bank A account. The deposits went to Broker A. Shortly thereafter he made two unfunded deposits of about $500,000. Those transactions were followed by using the “immediate access credit from Broker A to make a deposit of almost $200,000 in securities purchased through Broker A’s on-line trading application.
When Broker A learned about the transactions his firm immediately froze them. Ultimately the transactions were liquidated, yielding a net profit of $7,127.25. Defendant did not have any profits. Broker A escaped with no losses. The complaint alleges violations of Exchange Act Section 10(b).
Defendant resolved the charges, consenting to the entry of a permanent injunction based on the Section cited in the complaint . In addition, the injunction imposes restrictions on future brokerage activities. A penalty will also be imposed in an amount to be determined iin the futures. See Lit. Rel. No. 25816 (August 28, 2023).