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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 20735 / September 24, 2008

SEC v. Melvyn Nathanson, et al., Civil Action No. 08-8205 (SDNY)

SEC Charges Four Defendants In $1.1 Million Dollar Stock Loan Scam

On September 24, 2008, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging three individuals and a corporate entity involved in the securities lending, or “stock loan,” business with securities fraud. The Commission’s complaint alleges that from July 2003 through April 2005, the four defendants defrauded two securities brokerage firms out of a total of at least $1.16 million through the payment of sham finder fees and undisclosed kickbacks that ultimately came out of the pockets of the two brokerage firms.

The defendants named in the Commission’s complaint are:

Melyvn Nathanson (“M. Nathanson”), age 70, resides in Lady Lake, Florida. From at least October 1998 to March 2006, M. Nathanson worked as a stock loan finder with SME, which he effectively controlled.

Eric Nathanson (“E. Nathanson”), age 43, resides in Lady Lake, Florida. From October 1998 to March 2006, he worked as a stock loan finder with SME. E. Nathanson is M. Nathanson’s son.

Charles Peterein (“Peterein”), age 59, resides in Evergreen Park, Illinois. From September 2000 to May 2005, Peterein was a principal associated with PAX Clearing Corp. (“PAX”), a registered broker-dealer, and ran the firm’s stock loan trading desk.

Ganis Company, Inc. (“Ganis”) is an Illinois corporation with a business address in Evergreen Park, Illinois. Peterein and his wife are both officers of Ganis, but Peterein alone effectively controls Ganis and its bank account.

The Commission’s complaint specifically alleges as follows:

During the relevant period, Peterein was the stock loan trader in charge of the securities lending desk at PAX, and M. Nathanson and E. Nathanson operated SME. Through SME, M. Nathanson and E. Nathanson worked as consultants to Kellner, Dileo & Co. (“Kellner”), a registered broker-dealer based in New York City, and were paid to arrange stock loan transactions for Kellner. Pursuant to the defendants’ scheme, Peterein caused PAX to engage in stock loans with Kellner on terms that deliberately favored Kellner at PAX’s expense and increased the amount of compensation that Kellner paid to SME. In exchange, M. Nathanson and E. Nathanson directed kickbacks to Peterein by causing Kellner to pay sham finder fees on those stock loan transactions to Ganis, a shell-company controlled by Peterein. The fees paid to Ganis were a sham because, unbeknownst to Kellner, Ganis did not perform any finding or other legitimate services on the transactions. In addition, Peterein never told PAX that Peterein was receiving payments from Kellner, much less that the payments were kickbacks arranged by M. Nathanson and E. Nathanson to compensate Peterein for directing stock loan transactions to Kellner at rates that purposely disadvantaged PAX in order to generate payments to both SME and Ganis. Peterein, M. Nathanson and E. Nathanson caused PAX and Kellner to engage in over 4,000 stock loans pursuant to their scheme, with Kellner paying a total of approximately $651,580 to SME and a total of approximately $513,788 to Ganis in sham finder fees.

All four defendants are charged with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and, in the alternative, with aiding and abetting each other’s violations of certain of the above provisions of the federal securities laws. The Commission’s complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The Commission’s investigation is ongoing.

For additional information see:

SEC Complaint in this matter

 

http://www.sec.gov/litigation/litreleases/2008/lr20735.htm


Modified: 09/24/2008