Cousin Becomes Recruiter for Free Riding Scheme
The traditional free-riding scheme has been around for years. It takes advantage of the instant credit broker-dealers often extend to new accounts by immediately using the money to trade and eventually taking the money. The schemes are typically short-lived. A variation of the scheme employed recently, however, continued for years. SEC v. Treusch, Civil Action No. 1:24-cv-01050 (E.D.N.Y. Filed February 11, 2024).
Defendant Travis Treusch agreed to help his cousin, Christopher Flagg and his partner, Eduardo Hernandez continue to implement a sophisticated version of the typical free riding scheme. In this version Defendants essentially stole the instant credit extended by the broker-dealer. The account was then abandoned. The scheme was built on the following steps:
Defendants Flagg and Hernandez converted the instant deposit credits into cash for themselves; they used a trading strategy that involved executing matched trades in illiquid options between unfunded accounts they designated as the “loser” at certain brokers and profit generating or winner at others.
Since Defendants controlled each side of the transaction involving matched trades, they were able to execute the transactions at artificial prices. By doing this repeatedly they generated trading profits in the Winner Accounts and losses in the Loser Accounts.
Defendant Treusch joined his cousin and the scheme in August 2020 after it had been running for about two years. Mr. Treausch recruited dozens of new employees for the scheme and instructed them in the trading mechanics. Cousin Treausch was paid $300 to $500 for each loser account. The complaint alleges violations of Exchange Act Sections 10(b) and 20(e).
Mr. Treusch resolved the matter, consenting to the entry of a permanent injunction based on the Sections cited in the complaint and a conduct injunction. The duration of the conduct injunction and the amount of monetary relief will be determined by the Court. See Lit. Rel. No. 25962 (April 2, 2024).
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Cousin Becomes Recruiter for Free Riding Scheme
The traditional free-riding scheme has been around for years. It takes advantage of the instant credit broker-dealers often extend to new accounts by immediately using the money to trade and eventually taking the money. The schemes are typically short-lived. A variation of the scheme employed recently, however, continued for years. SEC v. Treusch, Civil Action No. 1:24-cv-01050 (E.D.N.Y. Filed February 11, 2024).
Defendant Travis Treusch agreed to help his cousin, Christopher Flagg and his partner, Eduardo Hernandez continue to implement a sophisticated version of the typical free riding scheme. In this version Defendants essentially stole the instant credit extended by the broker-dealer. The account was then abandoned. The scheme was built on the following steps:
Defendants Flagg and Hernandez converted the instant deposit credits into cash for themselves; they used a trading strategy that involved executing matched trades in illiquid options between unfunded accounts they designated as the “loser” at certain brokers and profit generating or winner at others.
Since Defendants controlled each side of the transaction involving matched trades, they were able to execute the transactions at artificial prices. By doing this repeatedly they generated trading profits in the Winner Accounts and losses in the Loser Accounts.
Defendant Treusch joined his cousin and the scheme in August 2020 after it had been running for about two years. Mr. Treausch recruited dozens of new employees for the scheme and instructed them in the trading mechanics. Cousin Treausch was paid $300 to $500 for each loser account. The complaint alleges violations of Exchange Act Sections 10(b) and 20(e).
Mr. Treusch resolved the matter, consenting to the entry of a permanent injunction based on the Sections cited in the complaint and a conduct injunction. The duration of the conduct injunction and the amount of monetary relief will be determined by the Court. See Lit. Rel. No. 25962 (April 2, 2024).
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