U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20580 / May 15, 2008
Securities and Exchange Commission v. Jamie L. Solow, Civil Action No. 06-81041-CIV-Middlebrooks/Johnson (S.D. Fla., November 8, 2006)
Federal Court Orders Jamie L. Solow to Pay Over $6 Million In Disgorgement and Penalties for Violating the Antifraud Provisions and Aiding and Abetting Violations of Various Broker-Dealer Net Capital, Books And Records, And Reporting Provisions of the Federal Securities Laws
On May 14, 2008, the Honorable Donald M. Middlebrooks of the U.S. District Court for the Southern District of Florida permanently enjoined Jamie L. Solow, a former registered representative who resides in Hillsboro Beach, Florida, from violating the antifraud provisions of 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 ("Securities Act"), and ordered Solow to disgorge $3,424,788.90 in ill-gotten gains (including prejudgment interest) from his violations and to pay a civil penalty in the amount of $2,646,485.99, based upon a jury verdict that had been returned against Solow in January 2008. The Court's order also enjoined Solow from aiding and abetting violations of various broker-dealer net capital, books and records, and reporting provisions and from attempting to register as a broker-dealer or investment adviser or being associated with a broker-dealer or investment adviser.
On January 31, 2008, following a nine-day jury trial, the jury found that Solow had violated these antifraud provisions and had aided and abetted violations of the net capital, books and records, and reporting provisions committed by one of his former firms, Archer Alexander Securities Corp. ("Archer Alexander"). The Commission's complaint, filed on November 8, 2006 and amended on September 24, 2007, alleged that in 2003, while associated with Archer Alexander, 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. 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 having an offsetting sale arranged or authorization from Archer Alexander's chief executive officer. The value of the resulting proprietary positions far exceeded Archer Alexander's available net capital, thereby exposing the firm to substantial risk without its knowledge or authorization. To hide the fact that his trades were not riskless principal transactions, Solow made numerous misrepresentations and omissions, including directing his assistant to prepare and submit false trade tickets that made it appear as though he had bought and sold blocks of inverse floaters on the same day. 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 also alleged that during 2003 to 2006, while associated with Archer Alexander and another registered broker-dealer, SAMCO Financial Services, Inc. ("SAMCO"), Solow sold inverse floaters to retail investors with conservative to moderate investment objectives or low net worth for whom these complicated, volatile, and risky securities were unsuitable investments. Solow defrauded his customers by grossly understating the risks of investing in inverse floaters. While at SAMCO, Solow recommended that his customers use high levels of margin to purchase inverse floaters, yet failed to adequately and truthfully apprise them of the increased risks associated with doing so. Eventually, as interest rates rose during the second half of 2005 and early 2006, the value of the inverse floaters that Solow had purchased for his customers, as well as the monthly interest and principal payments on these securities, declined dramatically. Many of Solow's customers, including numerous elderly or retired investors, incurred heavy or total losses when they liquidated their accounts or were unable to meet margin calls.
The Court's May 14, 2008 order stated that, "[d]uring the trial I saw Mr. Solow blame others for his failings, refuse to accept any responsibility for his own actions, and repeatedly testify falsely under oath. Based upon his demeanor and testimony at trial, and after watching his video presentation to investors and hearing the testimony of those individuals he enticed into risky investments through false promises, I conclude he should not be allowed to register as, or associate with a registered broker-dealer or investment adviser."