SEC Says San Diegan Cheats Day Traders

SAN DIEGO (CN) - Douglas Frederick defrauded more than 250 day traders through his unregistered business, Tuco Trading, by offering services that are illegal, and used $3.6 million of the traders' $10.2 million to pay his own expenses and cover losses, the SEC claims in Federal Court.

Frederick, 38, of San Diego, did not register Tuco with the SEC; allows day traders to trade even if their subaccount contains less than $25,000, which is illegal; and lets traders use up to $20 of Tuco's equity to buy securities for each $1 in their subaccount, though NASD and NYSE rules limit that service to 4:1, the SEC says.

The Commission claims Frederick's frauds are continuing. It says he used $3.62 million of traders' $10.2 million equity "to pay Tuco's expenses and to cover trader losses" through Dec. 31, 2007.

It claims that "as of Jan. 31, 2008, Tuco and Frederick used approximately $1.35 million of the traders' approximate $11.4 million total equity to pay Tuco's expenses and to cover trader losses."

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