On Thursday, December 2, 2010, the Securities and Exchange Commission settled civil charges against BroCo Investments, Inc. and its president Valery Maltsev arising out of an account intrusion scheme that manipulated the shares of over 100 public companies.
The case was originally filed as an emergency action on March 15, 2010, in the United States District Court for the Southern District of New York, to freeze the Defendants’ assets before funds could be moved overseas. At that time, the Honorable Richard J. Holwell granted the Commission’s request to freeze the Defendants’ assets pending a preliminary hearing. On June 17, 2010, the Commission obtained a preliminary injunction against BroCo and Maltsev.
According to the amended complaint filed today, the Commission alleges that BroCo and Maltsev controlled an omnibus account that was used to turn $2,080 into $627,633 in a six-month period by repeatedly buying and selling securities contemporaneously with unauthorized trades that had been placed in compromised accounts at various U.S. broker-dealers.
The amended complaint alleges that BroCo and Maltsev violated the antifraud provisions of the federal securities laws as a result of the fraudulent trading being conducted through their omnibus account. BroCo and Maltsev ignored several red flags that should have alerted them to the fraudulent activity including the massive short term trading gains being realized in the account, internal memoranda that identified the suspicious trading, and the constant repatriation of funds.
In settling the SEC’s charges without admitting or denying the allegations, BroCo agreed to pay $627,633 in disgorgement plus prejudgment interest and a $627,633 penalty. BroCo also consented to the entry of a judgment that permanently enjoins the company from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In settling the SEC’s charges without admitting or denying the allegations, Maltsev agreed to pay a $50,000 penalty and consented to the entry of a judgment that permanently enjoins him from violating Sections 17(a)(2) and (3) of the Securities Act of 1933. Both settlements are subject to court approval.
The SEC’s Office of Investor Education and Assistance has previously issued an investor alert, available on the SEC’s website, which provides tips for avoiding becoming a victim of an online intrusion. See http://www.sec.gov/investor/pubs/onlinebrokerage.htm.
The Commission acknowledges the assistance of FINRA and the NYSE in this matter.