May 25, 2023
Ex-Broker Must Pay $15 Million Over SEC Market Manipulation Suit
(Bloomberg) -- A former broker must pay more than $15 million for using over a dozen accounts to influence the prices of some 2,000 exchange-traded securities as part of an alleged market manipulation scheme the judge called “egregious.”
US District Judge Denise Cote on Thursday ordered James David O’Brien to disgorge more than $5 million and pay civil penalties of more than $10 million for the alleged scheme.
“His scheme was complex, required careful planning to execute, and consisted of over 18,000 discrete events of coordinated trading,” the judge wrote, citing facts she said showed his intent to defraud was “palpable.”
The SEC sued O’Brien in November 2021 and accused him of using at least 18 accounts at 14 firms, including some in his wife’s name. The agency said he coordinated trades to create the appearance of trading interest and made more than $9.6 million in net profits through the deception.
O’Brien settled with the agency in February, a month before his trial was set to begin, agreeing to have the court determine how much he would have to pay.
He contended in his arguments against the agency’s request for monetary relief that his activities weren’t illegal and that the SEC had conducted a “witch hunt” to find him liable for securities fraud.
John Hanamirian, a lawyer for O’Brien, said in an email that he hasn’t had a chance to digest the judge’s opinion yet and has a “tremendous amount of respect for the trial court.” Still, he said, he expected he would probably have to argue his client’s claims in appeals court “given the recency” of a 2020 US Supreme Court opinion limiting the power of the SEC.
The SEC claimed that O’Brien executed more than 18,000 trades in the accounts between 2015 and 2020 so he could buy stocks at artificially low prices and then quickly sell them at artificially high prices — accumulating larger positions in “winner” accounts at one firm while placing smaller positions in “helper” accounts at another.
The agency alleged that he reaped the $9.6 million in net profits from trades that were successfully coordinated and $5.8 million from his trades overall. It sought $5.24 million in disgorgement based on calculations from its expert. O’Brien contended the maximum was $110,909.
Warnings From Brokerages
Several of the firms O’Brien used for his scheme identified his behavior as potentially manipulative trading and warned him against it, and some closed his accounts, Cote wrote in her ruling. But he never disclosed his coordinated trading to brokerages and would open new accounts in his or his wife’s name when others were shut down, she said, calling the conduct “egregious.”
“O’Brien agreed to conceal the coordinated trading by using multiple accounts at different firms, disregarded the warnings of several brokerage firms, and obfuscated their attempts to understand his trading methods,” she said.
O’Brien, of Gibbsboro, New Jersey, has described himself as a trader or as self-employed on account-opening documents since 2013, according to the SEC. He was previously employed at a number of brokerage firms starting in 1994, most recently at Janney Montgomery Scott LLC in Philadelphia from April 2006 to March 2013, according to Finra’s BrokerCheck.
The case is Securities and Exchange Commission v. O’Brien, 21-cv-9575, US District Court, Southern District of New York (Manhattan).
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