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SEC says Conn. firm schemed to profit from Apple stock

By Stephanie Ostrowski | May 1, 2013


WASHINGTON (Legal Newsline) - A former Connecticut-based brokerage firm has been charged with scheming to personally profit from placing unauthorized orders to buy Apple stock.

According to the Securities and Exchange Commission, the scheme backfired and ultimately caused the firm to close.

David Miller, an institutional sales trader of Rockville Centre, N.Y., plead guilty in a parallel criminal case and has agreed to a partial settlement of the SEC's charges.

Announced April 15 by the SEC, allegedly 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 for 1,625 shares of Apple stock; however Miller entered a series of orders totaling 1.625 million shares at a cost of almost $1 billion.
"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."

According to the SEC, if the stock profited, Miller planned to share the profits with the customer. Conversely, if the stock decreased he would claim that he erred on the size of the order.

Ultimately the stock decreased after an earnings announcement on Oct. 25, 2012. The customer denied buying all but 1,625 Apple shares, and Rochdale was forced to take responsibility for the unauthorized purchase.

Rochdale then sold his shares of Apple stock at an approximately $5.3 million loss which forced the firm to cease operations due to the available liquid assets falling below regulatory limits required of broker-dealers.

The SEC's complaint charges Miller with violations of Section 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

To settle the charges, Miller is banned in separate SEC administrative proceedings from working in the securities industry or participating in any offering of penny stock.

In the partial court settlement, Miller agreed to be enjoined from future violations of the antifraud provisions of the federal securities laws.

A financial penalty will be determined at a later date by the court upon the SEC's motion.
In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud. He will be sentenced July 8.

The SEC's investigation is continuing.

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