The U. S. Securities and Exchange Commission (SEC) obtained a final judgment against defendant Eduardo Hernandez of Long Island, New York, for allegedly perpetrating a multi-year fraudulent “free riding” scheme that generated more than $2 million in illicit profits.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, charged Hernandez with violations of certain of the anti-fraud provisions of the federal securities laws, to wit: Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b5(a) and (c) thereunder, and further violating these provisions by acting through or by means of another person in violation of Exchange Act Section 20(b).
The SEC enforcement complaint alleged that Hernandez and three other defendants, all current or former residents of Long Island, perpetrated a free riding scheme, which is when a brokerage customer buys and sells securities without having the necessary funds to pay for the trading. Per the SEC’s claims, they opened and used unfunded brokerage accounts (“loser accounts”) to generate trading profits by engaging in matched trading with other brokerage accounts that they also controlled (“winner accounts”). The defendants opened the loser accounts at a broker that provided an instant deposit credit, which they used to fund the loser accounts’ trades with the winner accounts at manipulated prices, using thinly traded options. In doing so, the defendants essentially transferred the credit provided by the broker from the loser accounts to the winner accounts, accumulating guaranteed profits at the broker’s expense, according to the SEC’s Complaint. The SEC further alleged that defendants then abandoned the loser accounts, leaving the broker with the loss. Defendants allegedly used at least 600 brokerage accounts to repeatedly conduct the fraudulent scheme. Hernandez was accused of being the purported mastermind of the scheme and recruited individuals to open and provide him access to and control over the unfunded loser accounts. He directed the transfer of the trading profits from the winner accounts to himself typically within a few days of realizing them, the SEC contends.
Previously, in the SEC’s case, the Court entered a bifurcated consent judgment against Hernandez enjoining him from violations of the charged provisions and ordering a conduct-based injunction that permanently enjoined him from directly or indirectly trading securities in any brokerage account he owns, controls or has access to that does not have settled cash equal to or greater than the amount of the securities trade(s).
The final consent judgment against Hernandez, reimposed the previous relief, ordered him to pay disgorgement of $525,355 and prejudgment interest thereon of $122,996, payment of which is deemed satisfied by the order of restitution entered against him in the parallel criminal action, United States v. Hernandez et al., 23 cr. 428 (E.D.N.Y.), and imposed a second conduct-based injunction prohibiting Hernandez from opening a brokerage account without first providing to the relevant brokerage firm(s) a copy of the Commission’s filed Complaint and the judgment in this matter for a period of five (5) years.
Contact SEC Defense Attorney David Chase Today
Nationally known SEC defense attorney David Chase, Esq. of the Law Firm of David R. Chase, formerly a SEC Enforcement Attorney, represents those under SEC investigation around the country for alleged securities law offenses, including insider trading, market manipulation, investment advisor violations, and broker-dealer fraud. If you have just received an SEC Subpoena, or received a call from an SEC attorney, and need experienced and practical advice from a seasoned lawyer, contact David toll free at: 800-760-0912 or e-mail him at: david@davidchaselaw.com for a confidential consultation. Visit the Firm’s website for more information on SEC investigations and the Firm’s prior successful results for its clients at: www.securitiesfrauddefense.net.
