SEC Charges Free Rider With Fraud

Securities Lawyer 101 Blog

 On September 3, 2013, the Securities and Exchange Commission (“SEC”) filed a complaint in Federal District Court for the Southern District of New York charging Ronald Feldstein and two entities controlled by him, Mara Capital Management and Vita Health of America, with a “free-riding” scheme on the one hand, and with bilking investors out of more than $450,000 on the other.

The SEC alleges that between 2008 and 2011, Feldstein purported to manage two investment funds, which of course were Mara Capital and Vita Health.  In reality, they were thinly-capitalized entities that he used for his own personal trading.  He opened accounts with three brokerages in the names of these firms.  The accounts were “delivery versus payment,” or “DVP” accounts, which was advantageous to him because no cash balance needed to be maintained in them.

The brokerages believed that Feldstein’s entities held sufficient cash with a third party to settle trades.  Trades were supposed to be settled though a brokerage in London.  Unfortunately, Feldstein had no London brokerage account.  The first trades ordered in 2008 were to buy Lehman Brothers stock; they were disastrous.

But not for Feldstein.  According to the SEC, his plan was to trade risk-free:  if his plays were successful, he’d keep the money; if they were not, he’d walk away.  He settled profitable trades, and claimed he’d never authorized unprofitable ones.

Feldstein engaged in this free-riding between September 2008 and February 2009, causing three different brokerages to lose more than $2 million.  According to the SEC, he then shifted to defrauding individual investors.  He also owned and operated another corporation, called Trademore Capital Management, LLC; Trademore was incorporated in early 2009.  Trademore is a relief defendant in the SEC lawsuit.

In this separate scheme, Feldstein solicited investments from people he knew, including his dry cleaner of 30 years.  He persuaded the dry cleaner to give him money to purchase restricted stock in a telecommunications company, but failed to explain that that stock was restricted, or what that meant.  The “client” also gave him money to buy into the supposed IPO of a new fashion company that Feldstein said he owned with the former CEO of a major clothing label.  Feldstein promised he’d give his friend the chance to get in on the ground floor, at a deeply discounted price.  He never delivered the stock the man bought.

Feldstein did the same, in some cases touting different investments, with three others.  When they asked for their money back, he refused to accommodate their requests.

The SEC seeks disgorgement, penalties from Feldstein and the other companies, and a pennystock ban against Feldstein.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com

 

Comments are closed.