The U.S. Securities and Exchange Commission (SEC) filed settled charges against Ryan N. Cole, a resident of Folsom, California, for allegedly conducting a manipulative trading scheme, known as spoofing, from which he netted approximately $234,000 in ill-gotten gains.
The SEC complaint charges Cole with fraud in violation of the antifraud provisions of the federal securities laws, to wit: Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder. The complaint also charges Cole with violating Section 9(a)(2) of the Exchange Act, which in essence prohibits manipulative securities trading.
The SEC contends that Cole, while working for almost five years as a trader for a financial firm, placed fake — or “spoof”– orders to manipulate the prices of thinly traded options, and then executed different orders at the resulting manipulated prices. Cole is a former day trader and has never held any securities licenses. His alleged manipulative scheme included placing multiple spoof orders across neighboring options series. To facilitate desired executions across these series, Cole used the complex order book to place multi-leg immediate-or-cancel orders. After his immediate-or-cancel orders were executed, Cole then cancelled his spoof orders.
The SEC’s complaint further alleges that Cole took steps to conceal his spoofing scheme from the firm by providing false and misleading responses to questions concerning his trading. Cole received training from the Firm’s Chief Compliance Officer on disruptive trading practices and improper order behavior. The Firm required Cole to submit daily reports of his trading activity via firm-wide emails. In those reports, Cole identified his successful trades and described strategies he was purportedly executing. However, Cole did not disclose his spoofing strategy or any part of that strategy, per the SEC. On at least two separate occasions, members of the Firm’s senior management, including the Firm’s Chief Compliance Officer, questioned Cole directly about his “methodology” and the trading “strategies” he was employing. Ultimately, the firm terminated Cole.
Cole, without admitting or denying the allegations in the SEC’s complaint, consented to the entry of a final judgment, subject to court approval, imposing permanent injunctive relief for the charged anti-fraud statutory provisions and ordering him to pay disgorgement of $234,803 (alleged illegal gains) plus prejudgment interest of $52,656, and a civil penalty of $70,441.
The final judgment would also prohibit Cole, for a period of five years, from, directly or indirectly, opening, maintaining or trading in any brokerage account(s) in his name, the names of any immediate family members, the name of any company over which he has any control or the names of any third party individual(s), without providing the relevant broker-dealer(s) a copy of the complaint and final judgment entered against him. This provision is known as a conduct-based injunction and the SEC is increasingly utilizing this type of relief with the aim of tailoring its nature and scope to the underlying violative conduct. It is unclear whether the SEC actually possesses the legal authority to seek such equitable relief and only through legal challenge will its limits be tested.
SEC Spoofing Scheme Lawyer
Nationally respected SEC securities fraud defense attorney David Chase, of the Law Firm of David R. Chase, has successfully represented individuals in SEC investigations around the country for more than 25 years, having previously served as a Senior Counsel in the SEC’s Division of Enforcement in its Miami, Florida Office. If you are under SEC investigation for spoofing, or just received a SEC Wells Notice and need seasoned counsel to guide you through the SEC investigation process and protect your legal rights, contact David at: 800-760-0912 or e-mail him at: david@davidchaselaw.com. Visit the Firm’s website to read about David’s SEC defense experience and the firm’s recent successful results for its clients at: www.securitiesfrauddefense.net.
