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U.S. Securities and Exchange Commission


United States Securities and Exchange Commission,
450 Fifth St., N.W.
Washington, DC 20549-0708,






Civil Action No.:


Plaintiff Securities and Exchange Commission ("Commission") alleges:


1. From approximately March 6 - 8, 2000, defendant Jason T. Frazee ("Frazee") placed numerous phantom limit orders that affected the National Best Bid and Offer ("NBBO") for a thinly traded Nasdaq stock. Frazee's conduct, known in the industry as "spoofing," was intended to allow him to obtain otherwise unobtainable execution prices for orders on the other side of the market. In so doing, Frazee violated the antifraud provisions of the federal securities laws.


2. This Court has jurisdiction pursuant to Section 22 of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77v(a)] and Sections 21 and 27 of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u and 78aa].


3. Defendant Jason Frazee, age 23, is a self-employed investor living in Forked River, New Jersey.


The Limit Order Display Rule

4. The Limit Order Display Rule, Rule 11Ac1-4 under the Exchange Act ("Display Rule"), requires a Nasdaq market maker, subject to certain specified exceptions, to display in the market maker's public quote a customer limit order that (i) is priced better than the market maker's quote or (ii) represents more than a de minimis increase to the size of the market maker's quote, if the market maker's quote is at the NBBO at the time the customer's limit order is received.

5. The Display Rule provides greater transparency by allowing the market to see improving customer limit orders, and consequently, enhances liquidity and execution opportunities for customer orders.

Defendant's Conduct

6. From approximately March 6 - 8, 2000, Frazee placed approximately sixteen (16) buy limit orders to artificially affect the NBBO of a Nasdaq Small Cap security. Frazee affected the NBBO of this security by first placing a "buy" limit order with an electronic communications network ("ECN"). This order became the new best bid price. Within seconds, Frazee placed much larger orders through a different brokerage account on the opposite side of the market. These orders were filled by brokers who guaranteed execution of the security at the new NBBO up to a maximum number of shares, regardless of the size of the NBBO quote.

7. After moving the bid quote to the desired price and obtaining between three to thirteen advantaged executions, Frazee cancelled, or attempted to cancel, his initial market moving order. In this manner, Frazee manipulated the public quote to obtain better execution prices for his trades. Overall, Frazee obtained approximately ninety-six (96) advantaged executions at the new bid prices and improved his aggregate purchase price by approximately $18,112.

8. Frazee repeatedly engaged in a pattern of conduct that affected the NBBO and permitted the execution of orders at prices that would not otherwise have been available in the market. Frazee's actions interfered with the free forces of supply and demand and undermined the integrity of the NBBO.


Violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]

9. Plaintiff realleges and incorporates by reference paragraphs 1 through 8 above.

10. By reason of the foregoing, Frazee violated Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)] and Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].


11. The Commission respectfully requests that this Court (i) enter a Final Judgment against Frazee ordering him to pay a civil penalty pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act, and (ii) grant such other relief as this Court deems just and proper.

Daniel M. Hawke
Scott W. Friestad
Howard A. Scheck
Thomas W. Peirce

Attorneys for Plaintiff
Securities and Exchange Commission
450 Fifth St., N.W.
Washington, DC 20549-0708

Dated: (202) 942-4516 (Scheck)



Modified: 03/18/2003