Securities: SEC charges broker with scheme to divert profits from one client to another

In an investigation aided by Spanish and Swiss regulators - despite the reputation the USA likes to tar both of those with - the SEC has built a case against a broker who is alleged to have made many false entries in accounts to ensure that one client made a profit at another's expense.

The complaint, filed on 9 March, 2010 in federal court in Manhattan, alleges that Jose O. Vianna, Jr., a former registered representative at a New York based broker-dealer named Maxim Group LLC ("Maxim"), diverted profitable trades from the account of a large Spanish bank, referred to in the Complaint as Customer A, to the account of Creswell Equities, Inc. ("Creswell"), a British Virgin Islands company. The Commission's complaint alleges that over USD3.3 million in trading profits were diverted from Customer A to Creswell.

The complaint alleges that 57 times between July 2007 and March 2008, Vianna simultaneously entered orders in the accounts of Customer A and Creswell to trade the same amounts of the same stock. Each time, he placed a buy order in one customer's account and a sell order in the other customer's account. When the market moved to make Customer A's trade profitable and Creswell's trade unprofitable, Vianna improperly misused his access to Maxim's order management system to divert Customer A's profitable trade to Creswell and Creswell's unprofitable trade to Customer A by changing Maxim's records to inaccurately reflect the account for which the orders were entered. However, when the market moved so that Creswell's trade was profitable and Customer A's unprofitable, Vianna let the trades remain as originally entered.

The Commission's complaint charges Vianna with securities fraud in breach of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 and also charges Vianna with aiding and abetting breach by Maxim of the books and records requirements of Section 17(a) of the Exchange Act, and Rule 17a-3. The Commission seeks permanent injunctive relief from Vianna, as well as disgorgement of ill-gotten gains plus pre-judgment interest, and civil money penalties.

The Commission's complaint also charges Creswell as a relief defendant, and seeks disgorgement of Creswell's illicit profits, plus pre-judgment interest. On 9 March, 2010, the Court entered an order temporarily freezing Creswell's assets pending a hearing on the Commission's application to freeze Creswell's assets for the duration of the action.

The Commission acknowledges assistance provided by the Spanish Comisión Nacional del Mercado de Valores and by the Swiss Financial Market Supervisory Authority.