The U.S. District Court for the Northern District of Texas says that two ex-Southwest Securities Inc. brokers acted fraudulently when they purposely tried to circumvent policies designed to prevent market timing trades. The Securities and Exchange Commission had brought the case against the two men.
The brokers were aleged to have violated Act’s Section 10(b) and Rule 10b-5.
The court also found one culpable under the act’s antifraud provisions and ordered him to disgorge $56,640.67 in commissions. The court also ordered a $50,000 civil penalty and granted the SEC’s request for injunctive relief.
The SEC’s complaint alleges that one of the brokers opened Southwest Securities accounts to engage in market trading for Haidar Capital Management and Capital Advisor (“HCM”). He then allegedly asked the other broker, who did not have a license to trade mutual fund shares, to be his partner.
The two men allegedly received a “block notice” after attempting to place the first market timing trade for HCM. They received more block notices after making more trades.
They allegedly responded by adopting a new branch office number and using several broker numbers. Witnesses say that there is no legitimate reason to use multiple broker numbers and they often are an attempt to conceal an investor’s identity so that he or she can keep trading.
According to the court, the non-licensed broker may have contacted the mutual funds prior to making any trades, but “he acted with scienter, that is, he had the intent to deceive or defraud the mutual funds in which he traded on behalf of HCM.”
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