U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16332 / October 8, 1999
Securities and Exchange Commission v. Edward R. Cox and Cox Securities, Inc., Civil Action No. SA CV 99-1214 DOC (ANx) (C.D. Cal. September 30, 1999)
On September 30, 1999, the Securities and Exchange Commission ("Commission") announced the filing of an action against Edward R. Cox ("Cox") and his company Cox Securities, Inc. ("Cox Securities") charging them with securities fraud in connection with a scheme to avoid trading losses by falsely attributing losing trades to dozens of unsuspecting members of the Pacific Exchange. Cox was a floor broker on the Pacific Exchange where he executed securities trades for a broad institutional client base, and Cox Securities was the top trade producing floor broker at the Pacific Exchange in 1997.
The Complaint alleges that from at least November 1996 through March 12, 1998, Cox created over a thousand false trades in which he moved his trading losses to other Exchange members. When the other Exchange member objected that it had not participated in the trade at issue, Cox created further false trades and moved his trading loss to another unsuspecting Exchange member. Ultimately, this scheme involved at least 31 different securities, victimized at least 34 different broker-dealers and 19 floor specialists and resulted in over $1.5 million in losses.
The Commission charged both defendants with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Sections 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission also charged Cox Securities with violating, and Cox with aiding and abetting violations of, the broker-dealer books and records requirements of Section 17(a)(1) of the Exchange Act and Rule 17a-3 thereunder.
In a related matter, the Commission instituted and settled a cease-and-desist and a public administrative proceeding pursuant to Sections 15(b), 19(h) and 21C of the Exchange Act against Briant Patterson and his company Briant C. Patterson, Inc. who worked on the trading floor with Cox. Simultaneous with the institution of the proceeding, Patterson and his company consented without admitting or denying the Commission's findings, to the entry of an Order that found that Patterson and his company operated as an unregistered broker-dealer in violation of Section 15(a) of the Exchange Act, ordering them to cease-and-desist from future violations, and ordering Patterson to pay a $10,000 civil penalty.
The Commission acknowledges the assistance of the Pacific Exchange in connection with this matter.http://www.sec.gov/litigation/litreleases/lr16332.htm