U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 24004 / December 6, 2017
Securities and Exchange Commission v. Zachary S. Berkey, et al. Civil Action No. 17-cv-09552 (S.D.N.Y., filed December 6, 2017)
SEC Charges Brokers Defrauding Customers
The Securities and Exchange Commission today filed a civil injunctive action, charging two New York-based brokers with making unsuitable trades that were costly for customers and lucrative for the brokers.
The SEC's complaint, filed in federal court in Manhattan, alleges that Zachary S. Berkey, of Centereach, New York, and Daniel T. Fischer, of Greenwich, Connecticut, conducted in-and-out trading that was almost certain to lose money for customers while yielding commissions for themselves. According to the complaint, ten customers of Four Points Capital Partners LLC, where Berkey and Fischer previously worked, lost a total of $573,867, while Berkey and Fischer received approximately $106,000 and $175,000, respectively, in commissions.
According to the SEC's complaint, since the customers incurred significant costs with every transaction and the securities were held briefly, the price of the securities had to rise significantly for customers to realize even a minimal profit. The complaint also alleges that Berkey and Fischer churned customer accounts and concealed material information from their customers, namely that the costs associated with their recommendations, including commissions and fees, would almost certainly exceed any potential gains on the trades. The complaint further alleges that Fischer engaged in unauthorized trading.
The SEC's complaint alleges that Berkey and Fischer violated 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 complaint seeks permanent injunctions, disgorgement plus prejudgment interest and civil monetary penalties against the defendants.
Without admitting or denying the SEC's allegations, Fischer consented to a final judgment that, subject to court approval, permanently enjoins him from similar violations in the future and orders him to return his allegedly ill-gotten gains with interest and pay a $160,000 penalty. The SEC's litigation against Berkey will proceed in federal district court.
The SEC's investigation was conducted by Hane L. Kim, Karen Lee, David Stoelting, and Gerald A. Gross. Mr. Stoelting, Ms. Kim, and Ms. Lee will lead the litigation. The case is being supervised by Mr. Wadhwa. The SEC examination that led to the investigation was conducted by Rosanne R. Smith, Terrence P. Bohan, William D. Ostrow, and Doreen Piccirillo. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Office of Montana State Auditor, Commissioner of Securities and Insurance.