Iron Condor Options Strategy – Key to An Offering Fraud
Offering fraud actions continue to be a staple of the Commission despite all the changes at the agency. The cases typically center on a “too good to be true” offer to potential investors. Rather than seeing the scheme for what it is – an invitation to losing their investment funds – the investors, anxious for quick profits, jump in only to lose their money. While tragic, these kinds of cases are most difficult for the agency to halt no matter how many actions they file, but it is an essential part of the job in policing the markets. Its latest case in this regard is SEC v. Pallek, Civil Action No. 2:25-cv-00364 (E.D. Wis. Filed March 10, 2025).
Named as defendant is Ronald Pallek, a resident of Lakemoor, Illinois. He is the sole member of RAP Enterprises LLC and an investment adviser.
Between February 2021 and September 2023, he raised about $1.54 million from 87 investors. His sales pitch was keyed to an option trading strategy which he claimed had been highly successful. Specifically, Defendant Pallek said he used an “Iron Condor” options trading strategy, which is highly risky to earn profits for them. That strategy uses two put options – one short and one long – that have four strike prices and the same expiration date. The strategy earns maximum profits when the underlying asset price closes between the two middle strike prices at expiration. Stated differently, the strategy profits largely from low volatility and suffer losses in volatile markets. Defendant also claimed that he had sufficient funds to cover any potential loses for inventors.
In reality, the scheme was a lie. While Mr. Pallek did invest the funds in trading, he did not invest as promised. In addition, he did not have sufficient funds to cover investor losses. The losses mounted quickly to about $991,000 from options plus others generated from trading securities. To cover his tracks, Mr. Pallek sent investors false account statements showing profits. See Lit. Rel. No. 26264 (March 11, 2025).
On March 10, 2025, Mr. Pallek was criminally charged for the scheme. U.S. v. Pallek, No. 25-CR-43. The Commission filed a complaint alleging violations of Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, and Advisers Act Sections 206(4) and Rule 206(4)-8.