U.S. Securities and Exchange Commission
Litigation Release No. 21720 / November 2, 2010
Securities and Exchange Commission v. Noor Mohammed, Civ. No. 10-CV-5058 (LDW) (E.D.N.Y.)
SEC CHARGES TRADER IN FRAUDULENT FREE-RIDING SCHEME
The Securities and Exchange Commission today charged a Deer Park, New York man with orchestrating and conducting an illegal scheme that defrauded two broker-dealers out of more than $600,000, and netted the trader, alone or with others, over $223,000 in illicit profits.
The SEC alleges that Noor Mohammed, acting alone or in conjunction with others, conducted a fraudulent "free-riding" scheme by: (1) using false information to establish margin accounts at the broker-dealers; (ii) funding those accounts with checks that Mohammed knew were not backed by sufficient funds; (iii) executing over 100 trades in the accounts; and (iv) either profiting from the winning trades or abandoning the accounts without paying for the losing trades.
According to the SEC's Complaint filed in the U.S. District Court for the Eastern District of New York, from approximately April through October 2007, Mohammed, alone or with others, obtained and used the names and identities of several Bangladeshi immigrants to establish at least eight different brokerage accounts in which the illegal trading occurred. Mohammed fabricated and submitted false information to the broker-dealers on new account applications, misrepresenting, for example, the account holder's income, assets, employment, and investment experience. In total, Mohammed, alone or with others, fraudulently presented to the broker-dealers checks with a total face value of approximately $1.05 million, pretending to fund the brokerage accounts but knowing that the checks were not backed by sufficient funds. Mohammed solicited and obtained some of these checks from Bangladeshi immigrants he had recruited. Mohammed also, directly or indirectly, pretended to fund the brokerage accounts with checks drawn against bank accounts that he owned or controlled.
The Complaint further alleges that Mohammed, alone or with others, then purchased and sold hundreds of short term options in the accounts before the checks used to fund the accounts bounced. When the trades resulted in losses, which occurred on all but one occasion, Mohammed abandoned the brokerage accounts, leaving the broker-dealers holding the loss. On the one occasion when the trades generated a net profit, Mohammed directed the funding of the securities account with a second check backed by sufficient funds and proceeded to reap the profits from the successful trades.
The SEC charged Mohammed with violations of 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. The Commission seeks to enjoin Mohammed from future violations of these provisions, disgorgement of Mohammed's ill-gotten gains plus prejudgment interest, and a monetary penalty.
The Commission acknowledges the assistance of the United States Attorney for the Eastern District of New York, the Federal Bureau of Investigation, the Queens County District Attorney's Office, and the Suffolk County Police Department.
See Also: SEC Complaint