U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19954 / December 21, 2006
SEC v. Michael G. Velasco, Civil Action No. 06 CV 15345 (WHP/KNF) (S.D.N.Y.)
Commission Charges Former Deutsche Bank Securities Broker with Deceptive Market Timing of Mutual Funds
The Securities and Exchange Commission announced that on December 21, 2006, it filed an enforcement action in the United States District Court against Michael G. Velasco, a former broker at Deutsche Bank Securities, Inc. (DBSI), alleging that he and his customers deceptively market timed mutual funds.
The Commission named the following defendant:
In its complaint, the Commission alleges the following. Velasco defrauded mutual funds by engaging in deceptive market timing. Specifically, from approximately March 2003 through September 2003, Velasco utilized deceptive practices to circumvent mutual funds' restrictions on his market timing customers' trading. For example, various mutual funds identified Velasco's customers as market timers, and then rejected the customers' trades. In response, Velasco opened new accounts for the customers, who then used the new accounts to continue market timing the same mutual funds that had previously rejected the customers' trades. Through this conduct, Velasco concealed the true identity of his customers and misled mutual funds into believing that the subsequent trades were for different DBSI customers whose trading had not been blocked. Velasco earned significant commissions from his customers who engaged in market timing. At the same time, these customers' market timing trading harmed the mutual funds in which they traded.
The complaint seeks a final judgment permanently enjoining Velasco from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, as well as disgorgement of his ill-gotten gains and prejudgment interest, and the imposition of civil monetary penalties. Velasco has consented to the entry of a final judgment in this action, without admitting or denying the allegations in the complaint.
In a related matter, on December 21, 2006, the Commission instituted a settled administrative and cease-and-desist proceeding against DBSI finding that it failed to supervise Velasco, and that it permitted one customer to engage in late trading in mutual funds.
The Commission would like to acknowledge the assistance of the New York Attorney General in this matter.