by T. GormanPosted on Posted in SECActions

Many people claim there is “no free lunch;” others claim that “nothing is free;” and of course there are multiple variations of each of these slogans. Look at the securities markets. Some securities traders think that trading can be free. Those traders believe in “free riding,” although the free may only be for a short time. Consider SEC v. Acosta, Civil Action No. 3:25-CV-00323 (D. Pa.).

Rey D. Acosta thought he could trade securities for “free.” Sort of, but not quite. Mr. Acosta opened a brokerage account with Broker A in October 2021. On January 3, 2023, his account had a balance of $2 at Broker A. Defendant then made four ACH transfers totaling $1.5 million into his account at Broker A. The transfers were from his Bank A account. Defendant knew that Bank A did not have the funds to pay for his transactions.

Suddenly the transfers were reversed — insufficient funds. Before the reversal Mr. Acosta purchased three different stocks for a total of $122,311. Later the same day Defendant sold all the stocks he acquired netting profits of $93,565.

After the ACH transfers were reversed Broker A closed the account for suspected free-riding – that is, trading with no funds and, if the transfers stand, at the expense of the broker. Mr. Acosta knew, of course, that his accounts did not have sufficient funds to cover the transactions. He also knew that his conduct was inappropriate – he had been warned. The complaint alleged violations of Exchange Act Section 10(b) and Rule 10b-5.

On March 5, 2025, Defendant resolved the action, consenting to the entry of a final judgement that permanently enjoins him from violating Exchange Act Section 10(b) and Rule 10b-5. The final judgement also precludes him from opening a brokerage account without first providing the firm with a copy of the Commission’s complaint in this action. He was also directed to pay a $15,000 penalty. See Lit. Rel. No. 26261 (March 6, 2025).

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by T. GormanPosted on Posted in SECActions

The theme today seems to be “what a difference a day makes.” Last week the Commission was counting the billions of dollars it recovered from the fraudulent schemes of Robert Allen Stanford. This week the agency is trying to justify its existence to those who would like to hammer and slash not just the SEC but also every other federal agency. So the question is, if in fact the hammering and slashing continues and is effective who will protect investors and the markets? It may not be if agencies like the SEC are downsized and significantly weakened. Take, for example, the latest case handed down by the Commission, SEC v. Quartarano, Civil Action No. 2:21-cv-02305 (E.D. N.Y.).

The case is a previously filed action which names as a relief defendant Leonard Quartarano. Relief Defendant Quartararo consented to the entry of a final judgment that required him to give back the money he obtained from wrong-doing – disgorgement. He also had to pay prejudgment interest – essentially the money Mr. Quartarano made from having money he should not have had in the first place. In Mr. Quartarano’s case resulted in him paying into the Court $20,103.98 in disgorgement and prejudgment interest of $33,128.88. The Court’s order here means that Mr. Quartarano did not profit from his wrongful conduct. In a parallel state law case the court directed Lisa Eckert to pay disgorgement of $46,600. See New York v. Quartararo, No. CR-0000238/2021 (Sup Ct. NY). The underlying case in each instance was based on situations in which investors had been defrauded of their money by those who had obtained it through wrongful conduct. See Lit. Rel. 26260 (March 4, 2025).

The question we began with about what a the difference a day makes is this: Do the actions reported above help deter other investors from suffering similar losses because of the work by agencies such as the SEC and those at a New York state agency that filed he second action? What happens if there is no federal or state agency to protect investors in the future? Is it sufficient for those of us who did not suffer the losses to say “there will be someone else? Who??

See Lit. Rel. No. 26260 (March 4, 2025)

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