The Securities and Exchange Commission (SEC) announced on Wednesday that it has filed an emergency action, obtained a temporary restraining order and asset freeze against three individuals and three entities engaged in a suspected international trading fraud.
Specifically, the regulator’s complaint has accused Mediatrix Capital Inc. and its three principals, Michael S. Young, Michael S. Stewart, and Bryant E. Sewall of conducting an international trading program which has put more than $125 million of investor funds at risk.
Mediatrix Capital claims to be a Trading Advisor of foreign currency foreign exchange (FX) spot and over-the-counter (OTC) FX options. According to the US regulator, the accused participants solicited investors by falsely claiming that their money would be invested using a “highly profitable algorithmic trading strategy that had never experienced an unprofitable month and had returned more than 1,600 percent since inception”.
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SEC: trading strategy consistently lost money
However, according to the complaint filed by the watchdog, the trading strategy actually consistently lost money, losing more than $18 million in 2018 alone. In addition to lying about the profitability of the trading, the SEC has also accused the defendants of misleading investors by using a Ponzi-like payments scheme.
In particular, the SEC states that the defendants falsified account statements, made Ponzi-like payments, and misappropriated more than $35 million of investor money, which they used for personal use such as purchasing luxury property and vehicles.
“The SEC’s complaint, filed in federal district court in Colorado on September 12, 2019 and unsealed today, charges all defendants with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933, as well as with violating the registration provisions of Section 5(a) and 5(c) of the Securities Act,” the statement from the regulator said.
“The SEC’s complaint also charges Mediatrix Capital, Young, Stewart, and Sewall with violations of the antifraud provisions of the Investment Advisers Act of 1940. The SEC has also charged 20 relief defendants who allegedly received profits from the fraud.”