FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., April 15, 2013 — The Securities and Exchange Commission charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations.
David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC's charges. He also pleaded guilty today in a parallel criminal case.
The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer's profit if Apple's stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.
"Miller's scheme was deliberate, brazen, and ultimately ill-conceived," said Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit. "This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors."
According to the SEC's complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, 2012, with the company's earnings announcement expected later that day. His plan was to share in the customer's profit from selling the shares if Apple's stock price increased. Alternatively, if Apple's stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer's order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.
According to the SEC's complaint, Apple's stock price decreased after Apple's earnings release was issued on October 25. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase. Rochdale then sold the Apple stock at an approximately $5.3 million loss, causing the value of the firm's available liquid assets to fall below regulatory limits required of broker-dealers. Rochdale had to cease operations shortly thereafter.
The SEC's complaint charges Miller with violations of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. To settle the SEC's charges, Miller will be barred in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stock. In the partial settlement in court, Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws. A financial penalty will be determined at a later date by the court upon the SEC's motion.
In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud. He will be sentenced on July 8.
The SEC's investigation, which is continuing, has been conducted by Eric A. Forni, David H. London, and Michele T. Perillo of the Market Abuse Unit in the Boston Regional Office. The SEC acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut, Federal Bureau of Investigation, and Financial Industry Regulatory Authority (FINRA).
