Trader Charged With “Free Riding” By The SEC

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The US financial regulator, the Securities and Exchange Commission (SEC) has recently brought forward charges of fraud against one Vu Anh Nguyen. These charges are for orchestrating a scheme where he could trade securities without sufficient funding. The practice itself is commonly referred to as “free-riding.”

Over $1 Million In Losses Across Eight Brokerages

It’s estimated that this illicit scheme had caused more than $1 million in total losses for eight brokerage firms in total. Nguyen, based in Arizona, was charged along with Anthony Xavier Moya and Adam Micheal Reed, also Arizona residents. These charges are for aiding and abetting the scheme at large.

According to the complaint filed by the SEC, during the years 2018 and 2019, Nguyen opened up brokerage accounts, and then requested electronic fund transfers from bank accounts. However, Nguyen was well aware that these accounts didn’t hold sufficient funding to cover the transfers, doing so anyways. Further allegations by the complaint are that Nguyen, despite proper funding, had immediately started to trade securities within the accounts.

Running Away With $61,888

As the plot went on, the brokerage firms managed to figure things out and freeze the accounts he was using. However, Nguyen had already managed to transfer $61,888 out of these accounts. What this means is Nguyen escaped with the profits of the trading, all the while leaving the brokerage firms to settle the trades at significant losses to the firms themselves.

Further allegations in the complaint state that Moya and Reed had provided Nguyen with access to brokerage accounts they themselves opened. The complaint stated that they did so with full knowledge of how Nguyen would use these accounts in his fraudulent scheme.

As the complaint states, Nguyen had an alleged total of 26 accounts he partook in free-riding in, spread across eight brokerage firms. With it, he made $4.7 million worth of bogus transfers, as well as purchasing more than $16 million worth of securities.

Civil Penalties And Disgorgements

The SEC complaint stated that Nguyen violated Section 10(b) of the Securities Exchange Act of 1934’s antifraud provisions, as well as Rule 10b-5 thereunder.

The regulator is seeking injunctions as well as penalties against Nguyen, as well as Moya and Reed. Moya and Reed are facing charges of aiding and abetting in this case. The SEC is seeking disgorgement with prejudgment interest against Nguyen and Reed, in particular, with civil penalties against all defendants.

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