U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20749 / September 26, 2008
Securities and Exchange Commission v. Thomas J. Smith, Civil Action No. 1:08-CV-01640 (D.D.C.) (filed September 26, 2008)
SEC Charges Thomas J. Smith for Fraudulent Matched Order Scheme
The Securities and Exchange Commission today filed a settled injunctive action in the United States District Court for the District of Columbia against Thomas J. Smith ("Smith"), a former investment adviser, alleging that Smith engaged in a fraudulent matched order trading scheme from March 2002 through December 2004. The Commission's complaint alleges that through his own investment advisory firm which has since closed, Smith breached the trust of his investment advisory clients, all of whom were Smith's relatives, and fraudulently misappropriated approximately $676,223 from those clients. The fraudulent trading scheme involved at least 554 matched orders in at least 43 different stocks among various brokerage accounts that Smith controlled and managed for his advisory clients. As alleged in the complaint, to accomplish his fraudulent goal, Smith used thinly traded stocks, and executed his matched orders in the less liquid after-hours market. The complaint alleges that Smith placed near-simultaneous matching limit orders to buy and sell the same security between his and his clients' accounts in order to misappropriate his clients' funds.
Simultaneously with the filing of the complaint, Smith consented, without admitting or denying the allegations of the complaint, to the entry of a final judgment that: (i) permanently enjoins him from violating certain of the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5, and Sections 206(1), (2), and (3) of the Investment Advisers Act of 1940 ("Advisers Act"); and (ii) requires him to pay a civil penalty in the amount of $25,000, but does not impose a greater penalty, based on his sworn representations in his Statement of Financial Condition and other documents and information submitted to the Commission. As part of the settlement, and following the entry of the proposed final judgment against him, Smith, without admitting or denying the Commission's findings, has consented to the issuance of an administrative order pursuant to Section 203(f) of the Advisers Act, which bars him from association with any investment adviser.