The Securities and Exchange Commission (SEC) has brought charges against a 25-year-old Florida man for allegedly conducting a fraudulent "free-riding" scheme that allowed him to purchase over $300,000 in securities without sufficient funds.
Florida Man Charged in $300K "Free-Riding" Stock Scheme
Tyrone Johnny Lacy, Jr., a resident of Sefner, Florida, is accused of taking advantage of "instant buying power" credits offered by two broker-dealers in October 2022. The SEC alleges that Lacy used falsified account applications and sham bank deposits to induce the broker-dealers into extending him credit to buy securities.
According to the complaint, Lacy's bank accounts held minimal funds, and his fraudulent deposits were eventually reversed. However, before this occurred, Lacy allegedly used the credit to purchase around $331,700 in securities. Free riding in the stock market refers to the illegal practice of buying and selling shares or other securities before the original purchase has been fully paid for or settled.
“Lacy allegedly withdrew approximately $1,600 in trading profits and left one broker-dealer with a loss of approximately $1,500,” the SEC statement said.
The SEC has successfully halted the activities of fraudsters operating on a much larger scale in the stock market in the past. Over two years ago, the institution dismantled a $194 million global pump-and-dump scheme. Around the same time, it also charged five individuals who were the masterminds behind a $58 million scam.
Charges and Penalties Sought
The SEC's complaint, filed in the United States District Court for the Middle District of Florida, charges Lacy with violating anti-fraud provisions of the Securities Exchange Act of 1934. The Commission is seeking permanent injunctive relief, a conduct-based injunction, civil penalties, and disgorgement of ill-gotten gains with prejudgment interest against Lacy.
The case highlights the importance of broker-dealers maintaining robust security measures to prevent fraudulent activities and protect both their own interests and those of legitimate investors.
In the latest update concerning the SEC, Finance Magnates reported that Commission Chief Gary Gensler criticized the crypto industry for inadequate disclosures. Gensler maintains that most cryptocurrencies are securities and must comply with relevant laws.
