SEC charges six individuals for duping broker-dealers for instant deposit credit
““Securities traders who seek to cheat the market with fake deposits of money to make unfunded securities transactions will be held accountable for their deception. Freeriding is not a victimless scheme, as broker-dealers form an integral part of the market and are protected from fraud under the federal securities laws.”
The Securities and Exchange Commission has charged six individuals for conducting a freeriding scheme that defrauded multiple broker-dealers, from May 2019 to early January 2021.
The defendants, which include federal inmate Syed Arham Arbab, have allegedly made more than $2 million in bogus deposits from empty or underfunded bank accounts into various brokerage accounts to deceive broker-dealers into providing instant deposit credit for online securities trading.
Broker-dealers lost at least $146,660
The six defendants are Syed Arham Arbab and his high school and college friends and a relative. They are being charged with receiving more than $1.5 million in instant deposit credit that they used to make unfunded online trades, which caused affected broker-dealers to lose at least $146,660.
Arbab’s co-defendants gave Arbab their brokerage account log-in credentials so that he could personally engage in freeriding using their accounts. He also coached his friends and relative in real time through text messages about how to freeride using their own accounts.
According to the SEC, he conducted this scheme just before starting his prison sentence for another securities related scheme: a Ponzi scam he ran from his fraternity house near the University of Georgia campus in 2019. For the Ponzi scheme, he began serving a five-year sentence in January 2021, after he pleaded guilty in a parallel criminal case.
Justin C. Jeffries, Associate Director of Enforcement for the SEC’s Atlanta Regional Office, said: “Securities traders who seek to cheat the market with fake deposits of money to make unfunded securities transactions will be held accountable for their deception. Freeriding is not a victimless scheme, as broker-dealers form an integral part of the market and are protected from fraud under the federal securities laws.”
The SEC charged Arbab and his five co-defendants—Tomas Javier Jimenez, Blake Douglas McKinney, Mushfiqur Rahman, John Ryan Shows, and William Carl Spagnoli, with violating certain anti-fraud provisions of the federal securities laws.
Without admitting or denying the allegations, Jimenez, McKinney, and Shows have each consented to judgments, which, subject to court approval, would permanently enjoin them from violating the charged provisions, impose injunctions on future brokerage activities, and impose civil penalties. Jimenez and Shows each also consented to pay disgorgement and pre-judgment interest for their ill-gotten gains.