SEC Charges Individual with Defrauding Clearing Broker and Conducting Unregistered Broker-Dealer Activity

ADMINISTRATIVE PROCEEDING
File No. 3-22149

September 20, 2024 - The Securities and Exchange Commission today announced settled charges against Jiong Gu for making material misrepresentations to a clearing broker in order to set up brokerage accounts through which he could execute securities trades on behalf of China-based customers between September 2017 and March 2019.

According to the SEC's order, Gu intentionally misrepresented that the accounts would be used only to trade assets belonging to an entity under his control, Sesame Capital, and that by misrepresenting his purpose, he evaded the clearing broker's customer identification program. The order finds that Gu deposited more than $38 million in customer funds into the Sesame Capital accounts, that more than 130,000 orders were placed on behalf of Gu's customers, and that the trading incurred losses of more than $15.7 million. The order finds that in December 2018, upon discovering Gu's deception, the clearing broker restricted the Sesame Capital accounts from making new trades. However, according to the order, Gu circumvented the restrictions by making additional misrepresentations to the clearing broker in order to open new accounts in the names of three other now-defunct entities, through which he then placed trades with customer funds, including funds transferred from the Sesame Capital accounts, until March 2019.

The order finds that Gu violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)-5 thereunder, and Section 17(a)(1) of the Securities Act of 1933, by making material misrepresentations and omissions, and engaging in deceptive conduct, in connection with the disguised customer trading activity. The order also finds that Gu violated Section 15(a) of the Exchange Act by placing trades on behalf of his customers while not registered as a broker-dealer or associated with a registered broker-dealer.

Without admitting or denying the SEC's findings, Gu consented to cease-and-desist from further violations of these provisions of the securities laws. Gu committed to pay disgorgement of $265,231, prejudgment interest of $55,102, and a civil penalty of $230,464. He also agreed to be barred from associating with an investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in any offering of a penny stock, and from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.

The investigation was conducted by James Burt IV, Nicholas Flath, David Stoelting, Desiree Marmita, Jacqueline Fine, Kevin John Byrne, William Connolly, and Adam Grace, under the supervision of Tejal Shah of the New York Regional Office. The SEC examination that led to the investigation was conducted by Ronald R. Krietzman, Michael J. McAuliffe, and David A. Martin. The SEC appreciates the assistance of the Securities and Futures Commission of Hong Kong.