SEC Charges Broker-Dealer and Former CEO for Order Handling Misrepresentations
June 30, 2020
File No. 3-19844
June 30, 2020 - The Securities and Exchange Commission today announced settled charges against Potamus Trading LLC, a registered broker-dealer based in Boston, and its former CEO, Eric J. Pritchett, for misrepresenting how Potamus would handle and fill its clients' orders to trade equity securities.
According to the SEC's order, from September 2013 through March 2017, Potamus and Pritchett portrayed Potamus as filling its clients' orders on a principal basis by trading from its own inventory of securities or risking its capital in the market. The order finds that, in reality, Potamus rarely traded from inventory or risked its capital, and instead filled the vast majority of its clients' orders by engaging in undisclosed net trading. The order finds that when Potamus received client orders, it often did not fill them until it searched for and obtained executions for its own account within, and frequently at the midpoint of, the National Best Bid and Offer. If Potamus succeeded in obtaining an execution for its own account, only then did it fill the client's order at the National Best Bid or the National Best Offer, as applicable, to profit from this order flow.
The SEC's order finds that Potamus and Pritchett violated the antifraud provisions of Sections 17(a)(2) and (3) of the Securities Act of 1933. Without admitting or denying the findings in the SEC's order, Potamus agreed to a cease-and-desist order, a censure, and, based on its inability to pay a higher amount, a penalty of $50,000. Pritchett agreed to a cease-and-desist order, a penalty of $50,000, and one-year industry and penny stock bars.
The SEC's investigation was conducted by Andrew Palid, Mandy Sturmfelz, and Michele T. Perillo of the SEC's Market Abuse Unit and by Peter Moores and Rua Kelly of the Boston Regional Office. The examination that led to the investigation was conducted by Mark Gera, Nitish Bahadur, and Mark Dixon of the Boston Regional Office. The SEC appreciates the assistance of the Financial Industry Regulatory Authority.