U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19906 / November 9, 2006
Securities and Exchange Commission v. Jamie L. Solow, Civil Action No. 06-81041-CIV-Middlebrooks/Johnson (S.D. Fla., November 8, 2006)
SEC Sues Jamie L. Solow for Engaging in Fraudulent Trading Scheme Involving Inverse Floating Rate Collateralized Mortgage Obligations and Selling these Risky and Volatile Securities to Retail Investors for whom they were Unsuitable
On November 8, 2006, the Securities and Exchange Commission filed a civil action against Jamie L. Solow, 45, a former registered representative, alleging that, during 2003, Solow engaged in a fraudulent trading scheme involving inverse floating rate collateralized mortgage obligations ("inverse floaters"), a highly complex, risky, and volatile type of mortgage-backed security derivative. At that time, Solow was a registered representative associated with Archer Alexander Securities Corp. ("Archer Alexander"), a registered broker-dealer, and was based in Boca Raton, Florida. The Commission's complaint further alleges that, during the same period, Solow sold inverse floaters to retail customers for whom they were unsuitable investments.
According to the Commission's Complaint, Solow fraudulently evaded trading restrictions imposed on him by Archer Alexander and entered into numerous non-riskless principal transactions in which he secretly bought new issues of inverse floaters worth millions of dollars from other dealers for settlement at later dates without getting prior authorization from or informing Archer Alexander's chief executive officer. The value of these proprietary positions far exceeded Archer Alexander's available net capital, thereby exposing the firm to substantial risk without its knowledge. To conceal the true nature of his trades, Solow made, or caused to be made, numerous misrepresentations and omissions to Archer Alexander, including falsified trade tickets that made it appear that he had bought and sold blocks of inverse floaters on the same day, and thus on a riskless principal basis. Archer Alexander, unaware of the actual circumstances of these transactions, paid Solow millions of dollars in compensation during 2003 for inverse floater trades that he carried out pursuant to this fraudulent scheme.
The Commission's complaint further alleges that during 2003 Solow sold inverse floaters to retail customers with conservative to moderate investment objectives for whom they were unsuitable investments, and made material misrepresentations and omissions to these customers when doing so.
The Commission's complaint, filed in the United States District Court for the Southern District of Florida, alleges that by engaging in this conduct, Solow violated the antifraud provisions of the federal securities law, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933. The complaint also alleges that Solow aided and abetted Archer Alexander's violations of various broker-dealer liquidity, books and records, and reporting violations. The Commission's complaint seeks a permanent injunction against Solow, disgorgement, prejudgment interest, and civil money penalties.
The staff's investigation is continuing.