United States Securities and Exchange Commission
Securities Act of 1933
Securities Exchange Act of 1934
Public Proceedings Instituted against Salvatore DiAmbrosio, Bearcat, Inc., D&D Securities, Inc. and their owners in connection with a $2.2 million fraud
The United States Securities and Exchange Commission ("Commission") today filed public administrative and cease-and-desist proceedings against Salvatore DiAmbrosio ("DiAmbrosio"), Bearcat, Inc. ("Bearcat"), D&D Securities, Inc. ("D&D"), Peter Fineberg ("Fineberg"), Seth Diamond ("Diamond"), Nicholas DiCicco and Dominic DiCicco. In the order instituting these proceedings, the Commission alleged that DiAmbrosio violated the anti-fraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, by engaging in a $2.2 million unauthorized trading scheme from at least April 1999 to September 1999.
DiAmbrosio was a stock execution clerk associated with D&D, a member of the Philadelphia Stock Exchange ("PHLX"), where he was supervised by Dominic DiCicco and Nicholas DiCicco, the firm's principals. In addition, DiAmbrosio was also clandestinely associated as a trader with another PHLX member, Bearcat, where he was supervised by Diamond and Fineberg, the firm's principals. The victim of DiAmbrosio's scheme was Binary Traders, Inc. ("Binary"), a third PHLX member and one of D&D's principal customers.
The Commission alleged that DiAmbrosio conducted his fraudulent trading scheme by executing unauthorized cross-trades between Binary's trading accounts and either the error account at D&D or a trading account at Bearcat. Broker-dealers generally maintain error accounts in order to correct errors or mistakes that they make when executing trades for their customers. Legitimate cross-trades are executed by a broker-dealer on behalf of two customers where one customer places an order to buy a block of shares and another customer, at the same time, places an order to sell the exact same number of shares. Rather than force each customer to go out on the open market to buy or sell the stock, the broker-dealer transfers or "crosses" the stock from one customer account into the other customer account.
In essence, DiAmbrosio, without Binary's authorization or approval, entered a pair of cross-trades where: (1) in the first cross trade, Binary bought a large block of stock at an artificially high price either from the D&D error account or from the Bearcat account; and (2) shortly thereafter, many times less than a minute later, in a second cross-trade, Binary sold back the exact same large block of stock at an artificially lower price to the same account from which Binary had just bought the stock (i.e., either the D&D error account or the Bearcat account). The result was an immediate gain to either the D&D error account or the Bearcat account and an immediate loss to Binary. Similarly, DiAmbrosio also caused Binary to initiate the paired cross-trade by first selling a block of stock at a low price and then buying it back at a higher price moments later. The result of this second type of paired cross-trade (which began with Binary selling as opposed to buying) was the same--Binary took an immediate cash loss on the transaction.
By way of example, DiAmbrosio entered a pair of cross-trades on April 29, 1999 between Binary and the D&D error account:
Likewise, DiAmbrosio followed the same pattern for cross-trades between Binary and the Bearcat account.
By executing 79 of these paired cross-trades over a 6-month period, Binary suffered losses of almost $2.2 million while the D&D error account and the Bearcat account realized a combined gain of almost $2.2 million. To avoid detection of these unauthorized trades, DiAmbrosio, among other things, did not create certain mandatory records documenting the existence of these trades. DiAmbrosio then shared the profits in the D&D error account of at least $1,071,500 with Dominic DiCicco and Nicholas DiCicco and the profits in the Bearcat account of at least $1,112,562 with Diamond and Fineberg.
The Commission also alleged that DiAmbrosio was able to execute his scheme as a result of the grossly inadequate supervision that Bearcat, D&D and their principals exercised over him. Accordingly, the Commission charged that D&D, Nicholas DiCicco, Dominic DiCicco, Bearcat, Diamond and Fineberg failed to exercise reasonable supervision over DiAmbrosio as required by the securities laws. The Commission also alleged that they, along with DiAmbrosio, violated or aided and abetted violations of certain registration and record-keeping provisions of the securities laws, Sections 15(b) and 17(a) of the Exchange Act and the rules thereunder, in connection with this matter.http://www.sec.gov/litigation/admin/33-7925.htm