U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20135 / May 31, 2007
Securities and Exchange Commission v. David Lon Nally, Civil Action No. 1:07-CV-00991 (D.D.C.) (filed May 31, 2007)
SEC Sues David L. Nally For Fraudulent Wash Sales
The Securities and Exchange Commission today filed a settled injunctive action in the United States District Court for the District of Columbia against David Lon Nally ("Nally"), a resident of Ivins, Utah, alleging that Nally engaged in a fraudulent trading scheme from at least January 14, 2004 through November 29, 2004. The complaint alleges that Nally executed at least 138 wash sales in eight different stocks between various brokerage accounts that he controlled in order to transfer funds from a traditional IRA account to a Roth IRA account. As alleged in the complaint, to accomplish his fraudulent goal, Nally used thinly traded stocks, and executed his wash sales in the less liquid after-hours market. The wash sales consisted of near-simultaneous matching limit orders to buy and sell the same securities, which were placed in two accounts Nally controlled and were often placed at prices that were away from the existing market price to further ensure his buy order was filled with securities from the account in which he placed the sell order.
According to the complaint, through his fraudulent scheme, Nally sought to avoid the tax consequences of withdrawing funds from his traditional IRA account and thereby violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5. Through the wash trades Nally improperly shifted approximately $152,606.80 from his traditional IRA account to his Roth IRA account.
Simultaneously with the filing of the complaint, Nally consented, without admitting or denying the allegations of the Commission's complaint, to the entry of a final judgment that: (i) permanently enjoins him from violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5 and (ii) requires him to pay a civil penalty in the amount of $30,000.