NEWARK (CN) - Two Florida men cost broker-dealers $2 million, while snatching $600,000 in illicit profits for themselves through an illegal "free-riding" stock scam, the SEC says.
The SEC sued Scott I. Kupersmith, of Boca Raton, and Frederick C. Chelly, of Miami Beach, in Federal Court.
"This action involves an illegal 'free-riding' scheme perpetrated by Kupersmith and Chelly during 2009 and 2010 that caused over $2 million in losses to broker-dealers, while allowing Kupersmith and Chelly to reap over $600,000 in illicit trading profits," the complaint states.
"Holding themselves out as money managers for hedge funds or private investors,
Kupersmith and Chelly opened numerous brokerage accounts for corporate entities they controlled and bought and sold (or vice-versa) the same quantity of the same stock in different accounts, frequently on the same day, intending to profit on swings up or down in the stock price. Kupersmith and Chelly ordered the separate legs of these corresponding or offsetting trades in different brokerage accounts to avoid detection. When their trades were profitable, Kupersmith and Chelly took the profits. But when the trades threatened to result in substantial losses, Kupersmith and Chelly failed to cover the sales they had ordered, and left the broker-dealers to settle the trades at significant cost to the broker-dealers."
It was "a classic 'Heads I win, tails you lose' scheme, the SEC's New York regional director said in a statement.
Chelly, 42, is "the president and owner of Antibe Arbitrage Group, Inc. ('Antibe'), the corporate entity through which he opened the DVP accounts through which he conducted the fraudulent scheme," the complaint states.
Kupersmith, 47, is "the president and owner of Atlantic Southern Capital Group ('Atlantic Southern'), the corporate entity through which he opened the DVP accounts through which he conducted the fraudulent scheme. He also controlled Fullerton Capital Group, Inc. ('Fullerton'), and Northbrea Capital Group, Inc. ('Northbrea'), two other corporate entities he used to open additional DVP accounts through which he conducted the fraudulent scheme," according to the complaint.
The SEC seeks disgorgement, penalties and injunctions.
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