The U.S. Securities and Exchange Commission on Wednesday accused two New York-based brokers of defrauding their clients through a fraudulent in-and-out strategy that netted them more than $275,000 but cost customers nearly $575,000.
In the complaint, the SEC claimed Zachary S. Berkey of Centerreach, New York, and Daniel T. Fischer of Greenwich engaged in a pattern of unlawful trading with no basis to believe that these trades would be suitable for any client.
Berkey and Fischer are also accused of lying to customers, churning thier accounts and trading without authorization. While the pair took in $106,000 and $175,000 respectively in commissions from the scheme, 10 clients of Four Points Capital Partners LLC, where Berkey and Fischer previously worked, lost $573,867.
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The SEC said the duo also hid information from clients about the risky trades’ transaction costs, including commissions, markups and margin interest, that would eclipse any potential client gains.
Without admitting or denying the allegations, Fischer has agreed to settle the SEC’s claims and pay $160,000 in disgorgement, fines and interest. He also agreed to a securities industry ban, according to a consent order.
Unlike his partner, the SEC said it will proceed with litigation against Berkey in federal district court in Manhattan.
Sanjay Wadhwa, Senior Associate Director of the SEC’s NY Regional Office, commented: “We’re intensifying our focus on unscrupulous brokers and their harmful practices. As alleged in our complaint, Berkey and Fischer did grave harm to their customers by providing unsuitable recommendations and siphoning money in the form of high commissions and costs.”