U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23508 / March 31, 2016
Securities and Exchange Commission v. Nathanial D. Ponn, Civil Action No. 16-10624-GAO (D. Mass. filed March 31, 2016)
The Securities and Exchange Commission today announced fraud charges against Massachusetts resident Nathanial D. Ponn for engaging in a scheme to defraud numerous broker-dealers over more than seven years.
According to the SEC complaint filed in federal court in Boston, Ponn defrauded numerous brokerage firms through bogus bank transfers to newly opened brokerage accounts. These bogus transfers created the false appearance that the brokerage accounts would have cash available upon the settlement of Ponn's purchases of stocks and mutual fund shares. Ponn used temporary credits from the bogus transfers to purchase stock and mutual fund shares, which he repeatedly attempted to cash out or transfer to other financial institutions before the brokerages discovered that Ponn did not have actual money to fund the bank transfers.
In a parallel action, the U.S. Attorney's Office for District of Massachusetts today announced criminal charges against Ponn.
The SEC's complaint also alleges that:
- Brokers commonly permit customers to begin purchasing securities immediately after the brokers receive notice of a transfer of funds, subject to later verification, which takes approximately two to three days.
- Ponn exploited the two-to-three-day delay in the broker-dealers' verification process by repeatedly making securities purchases based on bogus cash transfers from bank accounts with insufficient funds.
- Beginning as early as 2007, but escalating in 2014 and continuing into at least April 2015, Ponn opened up approximately 600 brokerage accounts at various firms and purported to fund these brokerage accounts with bank transfers totalling at least $8.7 million from various bank accounts. All of the purported money transfers were from bank accounts that were underfunded or fake.
- After Ponn made the false money transfers, but before the brokerage firms discovered Ponn's activity, he purchased nearly $2.9 million worth of securities and attempted to withdraw cash from some of the accounts.
- Once the brokerages discovered that Ponn's initial deposits were fraudulent, they locked the associated brokerage accounts and sold the securities held within the accounts. The brokerage firms suffered losses of approximately $26,000 from Ponn's scheme.
The SEC's complaint alleges that Ponn violated Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and a civil penalty.
The SEC's investigation was conducted by Trevor Donelan and Lawrence Pisto and supervised by Robert Baker. The SEC's litigation will be led by Richard Harper. The SEC thanks the U.S. Attorney's Office for the District of Massachusetts and the Federal Bureau of Investigation for their assistance in this matter.
