The Securities and Exchange Commission recently filed securities fraud charges against Matthew Melton for allegedly making materially false statements to investors concerning the success of his trading algorithm and for stealing in excess of $1.5 million in investor capital.
Specifically, the SEC’s complaint contends that from April 2018 up through the end of October 2018, Melton brought in approximately $3.4 million from around twenty-three (23) investors in Puerto Rico and other parts. The SEC complaint further contends that Melton represented to investors that he would successfully trade stock index futures by utilizing his proprietary trading algorithm, which, he asserted, had produced returns of 12% annually on a consistent basis. In truth, Melton’s trading was consistently unprofitable, per the SEC’s allegations.
Investors in Melton’s algorithm trading program executed either a promissory note or loan agreement and issued funds to Melton’s personal bank accounts directly, where investor funds were comingled with other investor capital, per the SEC. Instead of utilizing investor funds as represented, Melton misappropriated at least $1.5 million in investor monies to effectuate Ponzi-like payments to other investors, and to fund his personal spending, which included travel and payments toward his mortgage.
The SEC’s complaint alleges Melton violated the anti-fraud provisions of the federal securities laws and requests relief including: a permanent injunction, a conduct-based injunction, return of ill-gotten gains (disgorgement) in addition to prejudgment interest, civil penalties, and an officer-and-director bar.
Evidently, Melton’s alleged fraudulent conduct apparently crossed the threshold into criminality as the federal criminal authorities indicted him in a parallel action with the SEC’s civil enforcement proceeding.
In my thirty years of SEC law experience, a case involving solely material misrepresentations of fact, including profitability and trading performance, is not typically likely to garner criminal interest. However, when misappropriation of investor funds also occurs, particularly when it involves vulnerable victims, such as the elderly, the risk of criminal prosecution is greatly increased. Based on the SEC’s allegations made in court, this appears to be such a case.
David Chase, Esq. of the Law Firm of David R. Chase, a former SEC prosecutor, is now an SEC defense lawyer and defends individuals and companies in SEC investigations nationwide. If you have just received an SEC Subpoena, contact him toll-free at: 800-760-0912 or e-mail at: firstname.lastname@example.org, and you can visit the Firm’s website for more information and content at: www.davidchaselaw.com.