U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19785 / August 1, 2006
SEC v. David A. Zwick, et al., Civil Action No. 03-2742 (JGK) (S.D.N.Y.)
Jury Rules in SEC's Favor, Finds Former Suncoast Principal David A. Zwick Liable for Securities Fraud Violations
Securities Trader Terence J. O'Donnell Also Found Liable for Aiding and Abetting Securities Fraud Violations
On July 27, 2006, jurors in Federal District Court in New York, N.Y. returned a verdict in the SEC's favor against former Suncoast principal David A. Zwick, and a verdict partially in the SEC's favor against trader Terence J. O'Donnell. In the three-week trial before Judge John G. Koeltl, the SEC had charged that Zwick participated in a fraudulent kickback scheme in which Suncoast, a registered broker-dealer, received order flow and trades at favorable prices from an employee of New York Life Insurance Company, Inc., in exchange for cash kickbacks and gifts.
The SEC alleged that over a 15-month period in 1998 and 1999, the New York Life employee directed trades totaling millions of dollars of securities to Suncoast at prices that were "off-market" or more favorable to Suncoast than were otherwise available in the market. This preferential treatment was therefore detrimental to New York Life, the SEC alleged.
In exchange for the trades, the New York Life employee was paid in cash and non-cash gifts. Zwick, the SEC alleged, procured, approved, and/or encouraged a Suncoast employee to give gifts and cash kickbacks, and knowingly or recklessly approved fraudulent prices on Suncoast trades with New York Life. O'Donnell, the SEC alleged in part, knowingly or recklessly executed most of the fraudulently priced New York Life trades.
The jury found Zwick liable on all counts, finding he violated Section 17(a) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 - general antifraud provisions of the federal securities laws. The jury found O'Donnell liable under Section 10(b) and Rule 10b-5 for aiding and abetting the fraudulent price markup scheme but found O'Donnell not liable on all other claims.
Previously, the Commission resolved its claims against former Suncoast principal Todd J. Cohen, dismissing its civil complaint against him upon the Commission's issuance of a settled administrative order suspending Cohen from acting in a supervisory capacity, and ordering Cohen to pay disgorgement, prejudgment interest and a civil money penalty.
For further information, please see Press Release 2006-125 (July 27, 2006), Securities Exchange Act Release No. 34-54108 (July 6, 2006) and Litigation Release No. 18096 (April 21, 2003).