Two Securities Traders Charged In Scheme That Netted $26 Million In Illicit Profits

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https://www.justice.gov/usao-nj/pr/two-securities-traders-charged-scheme-netted-26-million-illicit-profits

Department of Justice
U.S. Attorney’s Office
District of New Jersey

FOR IMMEDIATE RELEASE
Monday, December 12, 2016

Two Securities Traders Charged In Scheme That Netted $26 Million In Illicit Profits

Manipulated $10 Billion Worth of Securities in Tens of Thousands of Transactions

NEWARK, N.J. – Two New Jersey-based securities traders were arrested today and charged with orchestrating a massive, long-running market manipulation scheme that netted them more than $26 million in illegal profits between 2014 and 2015, U.S. Attorney Paul J. Fishman announced. Joseph Taub, 37, of Clifton, New Jersey, and Elazar Shmalo, 21, of Passaic, New Jersey, were each charged by complaint with one count of conspiracy to commit securities fraud. They are scheduled to appear later today before U.S. Magistrate Judge Steven C. Mannion in Newark federal court.
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According to documents filed in this case and statements made in court:

From December 2013 to December 2016, Taub, Shmalo, and other conspirators allegedly orchestrated a sophisticated scheme to manipulate the prices of securities of numerous public companies by coordinating trading in dozens of brokerage accounts that the conspirators controlled. The defendants and their conspirators looked for companies whose securities had low trading volumes because it was easier to manipulate their prices. In this way, they injected false information into the market about the supply and demand of these securities, artificially inflating their prices. They then profited by selling at the artificially inflated prices the shares they had accumulated at lower prices. In 2014 and 2015 alone, Taub, Shmalo and their conspirators engaged in more than 23,000 instances of manipulative trading, buying and selling $10 billion worth of securities and making more than $26 million in illegal profits.

The defendants and their conspirators relied on pre-arranged and coordinated trading among dozens of brokerage accounts they controlled. These accounts were held in the conspirators’ own names, the names of their family members, and the names of entities the conspirators controlled. Many of the accounts were opened in the names of individuals who neither controlled the accounts nor traded the securities held in the accounts (straw account holders). Taub funded many of the accounts that were not in his name and used the straw account holders to conceal the scheme from regulators and law enforcement.

The manipulative trading generally involved two or more trading accounts that bought and sold the same lightly traded stock on the same day during the same period of time. At least one account was primarily used to place multiple smaller orders to create upward or downward price pressure (the “helper account”) and at least one other account was primarily used to buy and sell larger quantities of stock (the “winner account”). The winner accounts profited by buying and selling at prices affected by the manipulative orders in the helper accounts. The helper and winner accounts were almost always held at different brokerage firms. The helper accounts frequently broke even or lost money, but in conjunction with the winner accounts, the conspirators profited overall.

The trading manipulations usually lasted just a few minutes each, during which time the conspirators sometimes controlled at least 80 percent of the volume of a targeted stock and traded in several accounts simultaneously. Most of the coordinated trading events involved dozens of orders and the purchase and sale of thousands of shares of targeted stocks. The defendants and their conspirators generated a net profit from these events more than 80 percent of the time.
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[nitpicker]

1. SEC also filing charges

http://www.sec.gov/news/pressrelease/2016-261.html