Securities Law Blog

Over the course of 14 months and on 150 occasions, a Latvian trader broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. Igors Nagaicevs reportedly used the direct, anonymous market access provided to him by various unregistered firms to trade those same securities at artificial prices and reaped more than $850,000 in illegal profits.

According to the SEC’s complaint filed in federal court in San Francisco, Nagaicevs manipulated the prices of more than 100 NYSE and Nasdaq securities and caused more than $2 million in harm to customers of U.S. brokerage firms. The SEC alleges that Nagaicevs violated the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties.

The SEC also instituted administrative proceedings against the four electronic trading firms that allowed Nagaicevs to trade through their electronic platforms without first registering. The SEC alleged that the firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading. The four firms include: Alchemy Ventures, Inc of San Mateo, California; KM Capital Management, LLC of Philadelphia; Zanshin Enterprises, LLC of Boise, Idaho; and Mercury Capital of La Jolla, California.

The SEC has charged First Resource Group LLC and its founder David H. Stern for recommending the purchase of securities in two penny stock companies while simultaneously selling their own shares.

The Fort Lauderdale-based firm and Stern allegedly solicited brokers to purchase stock in TrinityCare Senior Living Inc. and Cytta Corporation. Stern reportedly hired and trained First Resource’s salespeople and gave them information about TrinityCare to prepare sales scripts and pitch the stock to potential investors.

According to the SEC, “First Resource and Stern used a telephone sales boiler room to make inflated claims and defraud investors while simultaneously manipulating the price of the stocks and making profits for themselves.”

Some of the alleged false statements included that TrinityCare stock “is going to be a half-a-billion dollar company in five years or roughly a $40 stock.” Stern also reportedly distributed a research report on Cytta to investors stating that “Sales projections for 2010-2014 should exceed $500 million.”

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, Stern and First Resource violated federal securities laws by acting as unregistered broker-dealers. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and financial penalties as well as a penny stock bar against Stern.