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SEC charges former broker with unauthorized rogue trades
by Joseph Earnest April 15, 2013
Newscast Media WASHINGTON, D.C.—The Securities and Exchange Commission today charged a former employee at a Connecticut-based brokerage firm with scheming to personally profit from placing unauthorized orders to buy Apple stock. When the scheme backfired, it ultimately caused the firm to cease operations.
David Miller, an institutional sales trader who lives in Rockville Centre, N.Y., has agreed to a partial settlement of the SEC's charges. He also pleaded guilty today in a parallel criminal case.
The SEC alleges that Miller misrepresented to Rochdale Securities LLC that a customer had authorized the Apple orders and assumed the risk of loss on any resulting trades. The customer order was to purchase just 1,625 shares of Apple stock, but Miller instead entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion. Miller planned to share in the customer's profit if Apple's stock profited, and if the stock decreased he would claim that he erred on the size of the order. The stock wound up decreasing after an earnings announcement later that day, and Rochdale was forced to cease operations in the wake of covering the losses suffered from the rogue trades.
"Miller's scheme was deliberate, brazen, and ultimately ill-conceived," said Daniel M. Hawke, Chief of the SEC Enforcement Division's Market Abuse Unit. "This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors."
Click here to read or download SEC Complaint. (pop-up)
According to the SEC's complaint filed in federal court in Connecticut, Miller entered purchase orders for 1.625 million shares of Apple stock on Oct. 25, 2012, with the company's earnings announcement expected later that day. His plan was to share in the customer's profit from selling the shares if Apple's stock price increased. Alternatively, if Apple's stock price decreased, Miller planned to claim that he inadvertently misinterpreted the size of the customer's order, and Rochdale would then take responsibility for the unauthorized purchase and suffer the losses.
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