A former U.S. advisor, who was previously sanctioned by regulators, is facing charges of defrauding brokerage firms by engaging in “free riding” to exploit the credit offered by firms to enable immediate trading by new clients.
A federal grand jury in New Haven, Conn., returned an 11-count indictment against Andrew Komarow, a former rep with several firms — most recently, Royal Alliance Associates Inc. — charging him with 10 counts of wire fraud and one count of securities fraud in connection with a scheme that allegedly cost three firms a combined US$3.3 million.
According to the indictment, Komarow tried to exploit the clearing delay for electronic funds transfers from his bank account to various newly-opened brokerage accounts to engage in trading activity that exceeded the funds he had available to trade.
Specifically, it’s alleged that between October 2022 and February 2023, he initiated approximately US$8.9 million in transfers from his bank account to new brokerage accounts, despite not having the funds available to finance those transfers. U.S. authorities allege that he then used the brokerage accounts to engage in risky, short-term options trading with the aim of generating enough quick profits to cover the shortfall from the initial transfers.
As a result of the alleged scheme, the firms lost US$3.35 million.
Komarow was previously sanctioned by both the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority Inc. (FINRA) for related regulatory violations.
In 2023, without admitting or denying the regulator’s findings, Komarow consented to a permanent industry ban amid allegations that he failed to cooperate with FINRA’s investigation into his activities following his termination by his firm, which alleged he improperly used firm credit to trade.
And, in 2024, he was also sanctioned in a settlement with the SEC.
The allegations in the criminal case have not been proven, and he is presumed to be innocent of the charges.
At a court appearance on Monday, Komarow pled not guilty and was released on a US$50,000 bond.