SAN FRANCISCO (CN) - A Latvian man hijacked the online accounts of innocent customers at large broker-dealer firms in the United States and made $850,000 by manipulating stock prices, costing his victims more than $2 million in losses, the SEC says.
The SEC sued Igors Nagaicevs in Federal Court.
It claims that he hijacked online accounts at least 159 times, and then made unauthorized trades to manipulate the prices of stocks in which he already held a position through one of at least eight unregistered trading firms where Nagaicevs was an authorized trader. The scheme enabled Nagaicevs to consistently derive quick trading profits, even if he manipulated the price of the security by only a small amount.
The SEC says Nagaicevs ran his game from June 2009 through August 2010.
Nagaicevs generated more than $850,000 in illegal profits from this scheme. The unauthorized trading in the hijacked accounts also caused losses in excess of $2 million which were reimbursed by the broker-dealer firms that carried the victimized customer accounts, according to the complaint.
The 11-page complaint describes how Nagaicevs allegedly made thousands of dollars in profits by nudging share prices by only a few cents.
The SEC said in a statement that it has filed administrative proceedings against four electronic trading firms that allowed Nagaicevs to trade through their electronic platforms without first registering as brokers.
Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm s name, the SEC said in its statement.
These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.
According to the SEC statement, the electronic trading firms and individuals named in the SEC s administrative proceedings are:
Alchemy Ventures, Inc. of San Mateo, Calif.;
Mark H. Rogers, the firm's president, of San Carlos, Calif.;
Steven D. Hotovec, the firm's vice president, of Redwood City, Calif.;
KM Capital Management, LLC of Philadelphia;
Joshua A. Klein, the firm's founder and co-owner, of Philadelphia;
Yisroel M. Wachs, the firm's co-owner, of Philadelphia;
Zanshin Enterprises, LLC of Boise, Idaho;
Frank K. McDonald, managing member of the firm, of Boise;
Richard V. Rizzo, an associate of the firm, of Oceanside, N.Y.;
Mercury Capital of La Jolla, Calif.;
Lisa R. Hyatt, the firm's president, of Escondido, Calif.;
Douglas G. Frederick, an associate of the firm, of Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they committed or aided and abetted and caused broker registration violations. Hyatt and Rizzo each agreed to pay a $35,000 penalty, the SEC said in its statement.
In its federal complaint, the SEC asks Nagaicevs to disgorge his ill-gotten gains, and to be fined and ordered not to do it again.
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