[ by Melanie Gretchen ] A Florida man confessed to operating a "free-riding fraud," trading tens of millions of dollars worth in stocks - money he simply didn't have.  The individual pled guilty on Monday in the office of Manhattan District Attorney Cyrus Vance.  The trader also is looking at 2 related cases: (i) a criminal case that was filed in October by U.S. Attorney Paul Fishman in New Jersey, and, (ii) a civil fraud case filed by the SEC.

In a typical free-riding scheme, the trader sells shares in one brokerage account and covers that trade by buying the same shares in an account at a different brokerage.  This enables the trader to profit from short-term price fluctuations without placing personal assets at risk, but can also saddle brokerages with losses on bad trades.

Findings and Allegations. Scott Kupersmith admitted to grand larceny, securities fraud and scheming to defraud before state Supreme Court Justice Maxwell Wiley in Manhattan on Monday.  According to his prepared allocution, Kupersmith conducted "paired trades" more than 200 times, at more than 36 brokers, using accounts that named bogus shell companies and hedge funds.  He followed the same "paired trades" strategy - buying and selling publicly-traded securities - consistently, between July 2009 and September 2010.  Some of the companies Kupersmith traded in were: Baidu Inc., CME Group Inc., Netflix Inc., and Priceline.com Inc. "In effect, this was a risk-free Ponzi-style settlement scheme that allowed me to walk away with more than $1.2 million through this illegal trading," Kupersmith said. Based in Boca Raton, Florida, at the time of his arrest, Kupersmith operated through brokerage accounts at, and admitted to stealing from, brokerage firms, including:  Barclays Capital, Lazard Capital Markets, and Morgan Keegan & Co. Kupersmith said he successfully induced brokerages to open accounts by misrepresenting his net worth and his alleged control of a $20 million Manhattan hedge fund.  In addition, Kupersmith raised money by falsely telling investors to expect high returns, only to use the bulk of the funds to repay earlier investors, or on personal expenses such as limousines, luxury hotel rooms and adult entertainment clubs, Mr. Fishman said. The Cases. The New York case: New York v. Kupersmith, New York State Supreme Court, New York County, No. 04360-2011.  Justice Department case: U.S.  v. Kupersmith, U.S. District Court, District of New Jersey, No. 11-mag-03750.  The Civil Case: SEC v. Kupersmith et al in the same court, No. 11-06277. For further details, go to [Reuters, 5/8/12].