The SEC said a trader based in Latvia broke into online brokerage accounts of customers at large U.S. broker-dealers and manipulated prices in more than 100 New York Stock Exchange and Nasdaq Stock Market securities.
The accused, Igors Nagaicevs, made more than $850,000 in illegal profits, trading on stocks ranging from Landry’s Restaurants to SkyPeople Fruit Juice using the hacked accounts.
All told, the intrusions cost the brokerage firms’ customers more than $2 million.
The SEC did not name the brokerage firms affected, in its complaint against Nagaichevs. Nagaichevs could not be reached Friday morning for comment.
The SEC said it also instituted related administrative proceedings today against four electronic trading firms and eight executives charged with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets.
• Alchemy Ventures, Inc. of San Mateo, Calif.
◦ Mark H. Rogers, the firm’s president, who lives in San Carlos, Calif.
◦ Steven D. Hotovec, the firm’s vice president, who lives in Redwood City, Calif.
• KM Capital Management, LLC of Philadelphia
◦ Joshua A. Klein, the firm’s founder and co-owner, who lives in Philadelphia.
◦ Yisroel M. Wachs, the firm’s co-owner, who lives in Philadelphia.
• Zanshin Enterprises, LLC of Boise, Idaho
◦ Frank K. McDonald, managing member of the firm, who lives in Boise.
◦ Richard V. Rizzo, an associate of the firm, who lives in Oceanside, N.Y.
• Mercury Capital of La Jolla, Calif.
◦ Lisa R. Hyatt, the firm’s president, who lives in Escondido, Calif.
◦ Douglas G. Frederick, an associate of the firm, who lives in Brighton, Mich.
Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they committed or aided and abetted and caused broker registration violations. Hyatt and Rizzo each agreed to pay a $35,000 penalty.
According to the SEC’s complaint, Nagaicevs drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. This occurred more than 150 times in 14 months. He used “direct, anonymous market access provided to him by various unregistered firms,’’ the SEC said.
The firms allowed Nagaicevs to trade through their electronic platforms without first registering as brokers, the SEC said.
“These firms provided unfettered access to trade in the U.S. securities markets on an essentially anonymous basis,” said Daniel M. Hawke, Chief of the SEC’s Market Abuse Unit. “By failing to register as brokers, the firms and principals in this case exposed U.S. markets to real harm by evading crucial safeguards of the federal securities laws.’’
Tom Steinert-Threlkeld writes for Securities Technology Monitor.