U.S. Securities and Exchange Commission
Litigation Release No. 21571 / June 25, 2010
Securities and Exchange Commission v. BroCo Investments and Valery Maltsev, Civil Action No. 10-CIV-2217 (S.D.N.Y.)
SEC OBTAINS PRELIMINARY INJUNCTION FREEZING ASSETS AND ORDERING REPATRIATION OF FUNDS BY RUSSIAN INDIVIDUAL AND ENTITY IMPLICATED IN ACCOUNT INTRUSION SCHEME
On Thursday, June 17, 2010, the Honorable Richard J. Holwell entered a preliminary injunction against defendants BroCo Investments and Valery Maltsev. Among other things, the Court order freezes the defendants' U.S. assets and orders defendants to repatriate $400,000.
The Commission filed an emergency action on March 15, 2010, alleging violations of 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. The Commission alleged that the defendants and/or others acting in concert with them undertook to intrude into, and place trades in, online brokerage accounts at Scottrade, while simultaneously placing other, typically profitable sides of those unauthorized trades in their own account at Genesis Securities, LLC.
On June 17, 2010, the Court found that there is a substantial likelihood that the Commission will succeed in proving that defendants "participated in and substantially assisted fraudulent trading in Broco's account at Genesis Securities, thereby establishing liability under Section 10(b) and 17(a) as a primary violator or, at the least, as an aider and abettor." The Court based its decision, in part, on its findings that, among other things:
[T]here is ample evidence that Broco ignored obvious signs of fraud. [The subaccount] generated trading profits so large and so rapid that no reasonable executive could have believed that they were legitimate, at least not without receiving a remarkable and well-supported explanation. …
[The subaccount] achieved these results by consistently doubling and sometimes tripling or even quadrupling his subaccount balance in a single day's worth of trading. Even with leverage … those returns are unattainable in the real world. Examination of the pattern of daily trading also raises a strong inference of fraud.
* * *
Defendants did not require information about the Scottrade intrusions to appreciate the blatant signs of fraud [in the subaccount] — the absurd profits, the constant repatriations, and the daily trading patterns. Even if they were not aware of the Scottrade intrusions, defendants acted recklessly in failing to investigate those obvious red flags.
(Internal citations omitted).
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.
See Also: Litigation Release No. 21452 / March 16, 2010