by T. GormanPosted on Posted in SECActions

The Commission announced the resolution of two enforcement actions last week. Each centered on free riding. Be careful, be safe this week.

SEC Enforcement – Filed and Settled Actions

Statistics: Last week the Commission filed no new civil injunctive actions and no new administrative proceedings. The agency did announce the resolution of two previously filed enforcement cases.

Free riding: SEC v. Acosta, Civil Action No. 3::25 – cv- 00323 (M.D. Penn.) is a previously filed action which named as defendant Rey Acosta. Mr. Acosta is a resident of Pennsylvania. In October 2023, he opened a brokerage account with Broker A. As of early January 2023, the account had a balance of $2.00. In early January he placed four ACH transfers totaling $1.5 million into his brokerage account from Bank A. The bank account, as he knew, did not have sufficient funds to cover the transactions. The transfers were reversed. Prior to that date, however, he purchased three stocks for a total of $122,311. Later the same day he sold all of the purchased stocks, obtaining profits of $93,565. Previously, Defendant had been warned by Broker B about free riding. The complaint alleges violations of Exchange Act Section 10(b) and Rule 10b-5. Defendant resolved the action, consenting to the entry of a permanent injunction based on the Section and Rule cited in the complaint. The injunction requires Defendant to pay a penalty of $15,000 and directs that prior to opening any brokerage account in the future he provide the firm with a copy of the complaint in this action. See Lit. Rel. No. 26261 (March 6, 2025).

Free riding: SEC v. Quartarano</em>, Civil Action No. 2:21-cv-02305 (E.D. N.Y.). The case is a previously filed action which named as a relief defendant Leonard Quartarano. Relief Defendant Quartararo consented to the entry of a final judgment that required him to pay disgorgement. He also had to pay prejudgment interest. Specifically, he was ordered to pay the Court $20,103.98 in disgorgement and prejudgment interest of $4,862.02. Relief Defendant Paul Casella was ordered to pay $33,128.88 which was deemed paid by an order in a parallel state case. Also in that case Lisa Eckert was directed to pay disgorgement of $46,600. See New York v. Quartararo, No. CR-0000238/2021 (Sup Ct. NY). The underlying case in each instance was based on situations in which investors had been defrauded of their money by those who had obtained it through wrongful conduct. Lit. Rel. 26260 (March 4, 2025). Please note: This entry corrects an earlier report on these cases concerning the related New York state case that was published last week.

ESMA

Markets:

The European Securities and Markets Authority issued one article of a planned series on market issues. The article is titled “Geopolitical and Macroeconomic Developments Driving Markert Uncertainty, dated February 2, 2025 (here).

Hong Kong

Report:

The Securities and Futures Commission of Hong Kong issued its latest quarterly report which wraps up 2024 for the agency. The report is dated March 6, 2025 (here).

Singapore

Deferred payments:

The Monetary Authority of Singapore announced the launch of an Electronic Deferred Payment Solutions initiative for Mid-2025 (here).

Tagged with: ,

by T. GormanPosted on Posted in SECActions

Many people claim there is “no free lunch;” others claim that “nothing is free;” and of course there are multiple variations of each of these slogans. Look at the securities markets. Some securities traders think that trading can be free. Those traders believe in “free riding,” although the free may only be for a short time. Consider SEC v. Acosta, Civil Action No. 3:25-CV-00323 (D. Pa.).

Rey D. Acosta thought he could trade securities for “free.” Sort of, but not quite. Mr. Acosta opened a brokerage account with Broker A in October 2021. On January 3, 2023, his account had a balance of $2 at Broker A. Defendant then made four ACH transfers totaling $1.5 million into his account at Broker A. The transfers were from his Bank A account. Defendant knew that Bank A did not have the funds to pay for his transactions.

Suddenly the transfers were reversed — insufficient funds. Before the reversal Mr. Acosta purchased three different stocks for a total of $122,311. Later the same day Defendant sold all the stocks he acquired netting profits of $93,565.

After the ACH transfers were reversed Broker A closed the account for suspected free-riding – that is, trading with no funds and, if the transfers stand, at the expense of the broker. Mr. Acosta knew, of course, that his accounts did not have sufficient funds to cover the transactions. He also knew that his conduct was inappropriate – he had been warned. The complaint alleged violations of Exchange Act Section 10(b) and Rule 10b-5.

On March 5, 2025, Defendant resolved the action, consenting to the entry of a final judgement that permanently enjoins him from violating Exchange Act Section 10(b) and Rule 10b-5. The final judgement also precludes him from opening a brokerage account without first providing the firm with a copy of the Commission’s complaint in this action. He was also directed to pay a $15,000 penalty. See Lit. Rel. No. 26261 (March 6, 2025).

Tagged with: ,