Tied to Unauthorized $1 Billion Trade in Apple.

[ by Melanie Gretchen ]

A former Rochdale Securities trader has been charged with fraud after he set out to defraud the firm, according to a criminal complaint filed on Tuesday.  The United States attorney for the District of Connecticut alleged David Miller set out to defraud Rochdale when he began trading in Apple shares on 10/25/12, the day the big technology company reported its third-quarter earnings.

Federal Findings and Allegations. Mr. Miller told Rochdale that he was buying some 1.6 million Apple shares – $1 billion worth – on behalf of an unnamed client.  In fact, the client was only looking to buy 1,625, exposing Rochdale to financial liability.

Prosecutors allege that:

• Mr. Miller told Rochdale that a client placed an order to buy 1.6 million shares of Apple;  in fact, the customer order was only for 1,625 shares.  This proprietary purchase significantly overwhelmed the firm's available net capital.

• Mr. Miller expected that news of the 1.6 million purchase would get the market's attention and would cause the share price to rise;  in fact, the shares fell after the firm released its quarterly earnings, leaving the firm with a $5 million loss.

• Miller's talked with another brokerage firm, leading it to sell short Apple shares, in order to hedge against Miller's other position;  that firm was able to cover its short at a profit.

• Miller apparently had been planning this trade for weeks - to take place just before Apple's earnings were to be released;  during this period, he made false representations to the brokerage firm that shorted Apple, solely to faciliate the trade.

Rochdale (pronounced "Rockdale), based in Stamford, CT, is a smaller, lesser-known firm on Wall Street.  Nevertheless, its 60-employee population, includes bank analyst Richard Bove, who is based in Florida.

"As is so often seen in these types of cases, the alleged criminal conduct of Miller was for personal gain at the expense and detriment of others.  Manipulating and orchestrating stock transactions in such a manner is a very serious criminal offense and its impact can be both devastating and lasting." -- Kimberly K. Mertz, an FBI agent, in a statement.

For further details, go to [Dealbook, 12/4/12].