Eduardo Hernandez
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26340 / July 3, 2025
Securities and Exchange Commission v. Hernandez, No. 23-civ-08110 (E.D.N.Y. filed Oct. 31, 2023)
SEC Obtains Final Judgment Against Hernandez for Principal Role in “FreeRiding” Scheme
On June 30, 2025, the SEC obtained a final judgment against defendant Eduardo Hernandez for his role in a $2 million “free-riding” scheme.
The SEC’s complaint filed on October 31, 2023, alleged that from approximately November 2018 through January 2022, Hernandez and three other defendants, all current or former residents of Long Island, perpetrated a free-riding scheme to enrich themselves. According to the complaint, the defendants opened and used unfunded brokerage accounts (“loser accounts”) to generate trading profits by engaging in matched trading with other brokerage accounts that they also controlled (“winner accounts”). The complaint alleged that the defendants opened the loser accounts at a broker that provided an instant deposit credit, which they used to fund the loser accounts’ trades with the winner accounts at manipulated prices, using thinly-traded options. The complaint also alleged that in doing so, the defendants essentially transferred the credit provided by the broker from the loser accounts to the winner accounts, accumulating guaranteed profits at the broker’s expense. The SEC alleges that defendants then abandoned the loser accounts, leaving the broker with the loss. All told, over the relevant period, defendants allegedly used at least 600 brokerage accounts to repeatedly conduct the fraudulent scheme. Specifically, the complaint alleged that Hernandez was the mastermind of the scheme and recruited individuals to open and provide him access to and control over the unfunded loser accounts. The complaint further alleged that Hernandez directed the transfer of the trading profits from the winner accounts to himself typically within a few days of realizing them.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, charged Hernandez with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b5(a) and (c) thereunder and further violating these provisions by acting through or by means of another person in violation of Exchange Act Section 20(b). Previously, on September 24, 2024, in the SEC’s case, the Court entered a bifurcated consent judgment against Hernandez enjoining him from violations of the charged provisions and ordering a conduct-based injunction that permanently enjoined him from directly or indirectly trading securities in any brokerage account he owns, controls or has access to that does not have settled cash equal to or greater than the amount of the securities trade(s). The final consent judgment against Hernandez, entered on June 30, 2025, reimposed the previous relief, ordered him to pay disgorgement of $525,355 and prejudgment interest thereon of $122,996, payment of which is deemed satisfied by the order of restitution entered against him in the parallel criminal action, United States v. Hernandez et al., 23 cr. 428 (E.D.N.Y.), and imposed a second conduct-based injunction prohibiting Hernandez from opening a brokerage account without first providing to the relevant brokerage firm(s) a copy of the Commission’s filed Complaint and the judgment in this matter for a period of five (5) years.
The SEC’s investigation was conducted by Cynthia A. Matthews, David Austin, Matthew Lambert, John Marino, Pat McCluskey, and Lindsay S. Moilanen of the SEC’s New York Regional Office and the SEC Enforcement Division’s Market Abuse Unit, and was supervised by Joseph Sansone, Chief of the Market Abuse Unit. The SEC’s litigation is being led by Christopher J. Dunnigan, Ms. Matthews, and Ms. Moilanen, and is being supervised by Jack Kaufman and Mr. Sansone. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the FBI.