Account Intrusion, Pervasive Stock Manipulation The SEC on Thursday charged a trader in Latvia with widespread intrusion of online accounts, in which he manipulated the prices of more than 100 NYSE and Nasdaq securities.  It's estimated that customers of U.S. brokerage firms lost in excess of $2 million.  The SEC filed its complaint in federal court in San Francisco. In a related case, the SEC charged 4 electronic trading firms and 8 executives with enabling the trader’s scheme by allowing him anonymous and unfiltered access to the U.S. markets. SEC Findings and Allegations in Account Intrusion Case. Igors Nagaicevs broke into online brokerage accounts of customers at large U.S. broker-dealers and drove stock prices up or down by making unauthorized purchases or sales in the hijacked accounts. On more than 150 occasions over a 14-month period, Nagaicevs used direct, anonymous market access provided to him by various unregistered firms to trade those same securities at artificial prices, generating more than $850,000 in illegal profits.

“Nagaicevs engaged in a brazen and systematic securities fraud, repeatedly raiding brokerage accounts and causing massive damages to innocent investors and their brokerage firms.” -- Marc Fagel, Director of SEC’s SFRO.

SEC Findings and Allegations in Market Access Case. Four electronic trading firms allegedly allowed Nagaicevs to trade through their electronic platforms without first registering as brokers.  Each of the trading firms provided him online access to trade directly in the U.S. markets through an account held in the firm’s name.  These firms gave Nagaicevs a gateway to the U.S. securities markets while circumventing the protections of the federal securities laws, including requirements for brokers to maintain and follow adequate procedures to gather information about customers and their trading.

“By failing to register as brokers, the firms and principals in this case exposed U.S. markets to real harm by evading crucial safeguards of the federal securities laws.  We will not allow firms like these to fly under the radar and become safe havens for market abuse.” -- Daniel Hawke, Chief, SEC Market Abuse Unit.

Named in the SEC’s Administrative Proceedings:

• Firm: Alchemy Ventures, Inc., San Mateo, CA Mark Rogers, Firm President, San Carlos, CA Steven Hotovec, Firm VP, Redwood City, CA

• Firm: KM Capital Management, LLC, Philadelphia Joshua Klein, Firm founder, co-owner, Philadelphia. Yisroel Wachs, Firm, Philadelphia.

• Firm: Zanshin Enterprises, LLC, Boise, ID Frank McDonald, Managing Member of Firm, Boise. Richard Rizzo, Associate of firm, Oceanside, NY

• Firm: Mercury Capital, La Jolla, CA Lisa Hyatt, Firm President, Escondido, CA Douglas Frederick, Associate of Firm, Brighton, MI

Mercury Capital, Hyatt, and Rizzo each agreed to a settlement in which they consented to SEC orders finding that they committed or aided and abetted and caused broker registration violations. Hyatt and Rizzo each agreed to pay a $35,000 penalty. Next Steps for SEC. The SEC’s administrative action will determine whether the non-settling trading firms and principals violated the broker registration provision of the federal securities laws, or whether the non-settling principals aided and abetted and caused the firms’ violations, and what sanctions, if any, are appropriate as a result. The SEC’s complaint alleges that Nagaicevs violated the antifraud provisions of the federal securities laws and seeks injunctive relief, disgorgement with prejudgment interest, and financial penalties. SEC Staff Credits. The SEC’s Market Abuse Unit, headed by chief Daniel M. Hawke and deputy chief Sanjay Wadhwa, conducted the investigation in this matter jointly with the agency’s San Francisco Regional Office under the leadership of Director Marc J. Fagel and Associate Director Michael S. Dicke. Jina L. Choi and Steven D. Buchholz – members of the Market Abuse Unit in San Francisco – together with Alice Jensen of the San Francisco Regional Office conducted the agency’s investigation, which is ongoing. The SEC’s litigation effort will be led by Lloyd A. Farnham and John S. Yun of the San Francisco Regional Office. The SEC thanks the Financial Industry Regulatory Authority (FINRA), Cyprus Securities Commission, and Latvia Financial and Capital Market Commission for their assistance. For further details, go to:  [SEC PR 12-17, 1/26/12].