MANHATTAN (CN) - Redwood Trading CEO Dennis McNeil aided and abetted a $2.4 million fraud on the market through thousands of illegal short sales and hid Redwood trading losses of $140,000, the SEC says in Federal Court. It accuses Robert T. Beardsley and George Lindenberg of masterminding the scheme, in a separate complaint.
Beardsley and Lindenberg met in 2001 "at a training program for day traders," the SEC says. In its complaint against them, the SEC claims Beardsley and Lindenberg persuaded McNeil to disable a computer program designed to bar illegal short sales. Beardsley and Lindenberg then allegedly managed to mark their short sales of sinking stock as long sales, eluding an SEC rule.
Beardsley and Lindenberg conducted their trades through Redwood, the SEC says.
The SEC claims: "Beardsley and Lindenberg placed thousands of trades through these accounts to carry out their strategy of driving down the price of a stock by rapidly executing illegal short sales in a given stock within a matter of minutes. By successively selling shares of stock at lower prices, Beardsley and Lindenberg also intended to induce others to sell in order to further depress the price of the stock, Beardsley and Lindenberg then took advantage of the downward price movement by buying shares of the stock at the artificially depressed price to cover their illegal short sales."
In its complaint against McNeil, the SEC claims he "aided and abetted his customer's fraudulent trading scheme involving the execution of thousands of short sales of securities listed on the New York Stock Exchange with the intent to artificially depress the prices of those shares, and (ii) engaged in a scheme to conceal substantial trading losses that McNeil had incurred in a Redwood proprietary trading account during July and August 2004. The trading scheme that was orchestrated by McNeil's customer, and aided and abetted by McNeil, yielded approximately $2,400,000 in illicit gains in less than a year. McNeil's scheme to hide trading losses, caused losses to Redwood of approximately $140,000, which, in turn, caused Redwood to engage in business while undercapitalized."
Redwood is "a now defunct broker-dealer."
Beardsley, 45, now lives in Atherton, Calif., where he is a real estate agent, the SEC says.
Lindenberg, 37, works as a "commercial landscaper" in Austin.