U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


Litigation Release No. 19090 / February 17, 2005

Securities and Exchange Commission v. David S. Davidson, et al., Civil Action No. 05-CV-742 (E.D. Pa.)

The Securities and Exchange Commission ("Commission") announced that on February 17, 2005, it filed a civil action in the United States District Court for the Eastern District of Pennsylvania against David S. Davidson, Lloyd S. Beirne and Brandon T. Bush, all of Boca Raton, Florida. Davidson is the former chairman and chief executive officer of D.L. Cromwell Investments, Inc. ("Cromwell"), a defunct broker-dealer formerly located in Boca Raton, Beirne is Cromwell's former president, and Bush was a Cromwell trader.

The Commission's Complaint alleges a short selling scheme in which, from late October 2002 through March 2003, defendants fraudulently used non-existent trades to hide a burgeoning short position in the stock of Expedia, Inc. ("Expedia"), held in Cromwell's proprietary account at its clearing broker, which is located in Philadelphia, Pennsylvania. Davidson, Beirne, and Bush used the access that Cromwell, as an introducing broker, had to the clearing broker's system to falsely place Expedia buy orders, which they knew they would cancel the next day, claiming the orders were placed in error. The Complaint alleges that defendants entered and cancelled these fictitious buys almost daily for five months, concealing the size of the short position from the clearing broker, and avoiding serious financial consequences, including margin calls.

The Complaint further alleges that the scheme unraveled on March 19, 2003, when the announcement of a tender offer for Expedia by its majority shareholder lifted Expedia's price from $38 per share to more than $47. Shortly thereafter, the clearing broker discovered the fraud. Cromwell could not cover its short position in Expedia, which had grown to approximately 660,000 shares, and the clearing broker was forced to pay $18 million to cover the position.

The Complaint alleges that defendants Davidson, Beirne and Bush have violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The Complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and civil penalties.

SEC Complaint in this matter


Modified: 02/17/2005