U.S. SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 19410 / September 30, 2005
SECURITIES AND EXCHANGE COMMISSION v. EHRENKRANTZ KING NUSSBAUM, INC., ANTHONY OTTIMO and BRENDAN E. MURRAY, DEFENDANTS, Civil Action File No. 05-CV-4643 (E.D.N.Y.).
SEC CHARGES EHRENKRANTZ KING NUSSBAUM, INC. AND TWO ASSOCIATED PERSONS WITH FRAUD IN CONNECTION WITH ILLEGAL MARKET TIMING ACTIVITIES
The Securities and Exchange Commission today announced the filing of a civil injunctive action against a Garden City, New York, registered broker-dealer, its Chief Executive Officer, and an unregistered former associate of the broker-dealer for engaging in a scheme to defraud multiple mutual fund companies in connection with market timing activities undertaken by certain of the broker-dealer's customers. The fraudulent scheme involved the use of multiple, "cloned" brokerage accounts to market time mutual funds that limited or otherwise restricted market timing. Specifically, throughout at least 2003, the defendants masked the volume and frequency of their customers' trading activity in mutual funds by placing their customers' trades through multiple, cloned accounts. These accounts, which in many instances bore branch office identifiers and registered representative codes that had nothing to do with any of the broker-dealer's market timing customers, allowed the broker-dealer's market timing customers to disguise their identities, elude the attention of the mutual funds' so-called "market timing police," and avoid having their further trading in those mutual funds halted or otherwise restricted.
Named in the Commission's complaint are:
Ehrenkrantz King Nussbaum, Inc. (EKN), a registered broker-dealer and member firm of the NASD, which is located in Garden City, New York;
Anthony Ottimo (Ottimo), age 66, a resident of Plainview, New York, and EKN's Chief Executive Officer; and
Brendan E. Murray (Murray), age 43, a resident of Patchogue, New York, and, at all relevant times, an unregistered associate of EKN.
The complaint alleges that the defendants' scheme allowed EKN's market timing customers to place hundreds of market timing trades in at least nine mutual fund companies. By use of the multiple accounts, with multiple branch office identifiers and multiple registered representative codes, defendants made it appear as if all the mutual fund orders being submitted by EKN's four market timing customers were coming from many different customers, trading through different EKN branch offices, and being assisted by numerous EKN registered representatives. In fact, all four of these customers did business only through EKN's Garden City, New York office, and were assisted by only one EKN registered representative, Ottimo.
By their conduct, the defendants allowed their market timing customers to extract millions of dollars from the mutual funds the customers market timed, and the defendants reaped at least $230,000 in commissions and fees as a result of the scheme.
The complaint charges EKN, Ottimo, and Murray with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint further charges EKN with violations of Section 15(b)(7) of the Exchange Act, and Section 15(c)(1) of the Exchange Act and Rule 15b7-1 thereunder, and Ottimo and Murray with aiding and abetting these violations. The Commission seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.