A U.S. district court in New York has issued a final judgment against a man accused of operating a “free riding” scheme that duped brokerage firms.
The U.S. Securities and Exchange Commission (SEC) obtained a final judgment this week from the U.S. district court for the Eastern District of New York against Eduardo Hernandez, who it accused of participating in a scheme that involved opening hundreds of brokerage accounts and trading against those accounts to generate illicit trading profits.
In its complaint, which was filed in 2023, the SEC alleged that Hernandez and three co-conspirators “opened and used unfunded brokerage accounts (“loser accounts”) to generate trading profits by engaging in matched trading with other brokerage accounts that they also controlled (“winner accounts”).”
The “loser accounts” were opened at brokerage firms that provided instant deposit credits, which the traders used to fund their trades with the winner accounts “at manipulated prices, using thinly-traded options,” the SEC alleged.
As a result, the scheme’s perpetrators effectively generated guaranteed profits at the expense of the brokers that hosted the loser accounts. The SEC alleged that the loser accounts were then abandoned, leaving the brokers with losses.
The regulator alleged that Hernandez “was the mastermind of the scheme and recruited individuals to open and provide him access to and control over the unfunded loser accounts.”
The final consent judgment against Hernandez ordered him to pay disgorgement of US$525,355 and prejudgment interest of US$122,996, along with conduct-based injunctions, including a prohibition on opening a brokerage account for five years.
The payment of the disgorgement is deemed satisfied by a restitution order against him in the parallel criminal action, the SEC noted.
Earlier this year, Hernandez was sentenced to 48 months in prison and to pay US$2.5 million in restitution after pleading guilty to one count of money laundering conspiracy.