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Individual Defrauds Hundreds of Broker-Dealers, Gets 15 Months in Jail
In March, a Massachusetts resident was sentenced to 15 months in jail for orchestrating a scheme that defrauded numerous brokerage firms. The defendant was also ordered to pay over $20,000 in restitution to 3 brokerage firms for losses caused by his fraudulent conduct.
THE SCHEME. From 2007 through April 2015, Nathanial Ponn opened several hundred brokerage accounts at various broker-dealers. Upon opening these accounts, Ponn purported to fund them with bank transfers, mostly Automated Clearing House ("ACH") transfers, from bank accounts that were substantially underfunded or fictitious.
However, before the brokerage firms discovered the fraud, many of them credited Ponn's brokerage accounts, which allowed him to purchase securities and to attempt to withdraw money. Once the broker firms discovered the bogus nature of the bank transfers, they locked Ponn's accounts, sold off the accounts' holdings, and ultimately closed the fraudulently opened accounts.
INCURRED LOSSES. All told, Ponn opened some 600 brokerage accounts and ‘arranged’ around $8.7 million in bogus bank transfers. Based on these 'transfers', brokerage firms credited Ponn's accounts for approximately $6.3 million, which Ponn then used to purchase approximately $2.9 million's worth of securities. He also attempted to withdraw at least $271,000 from these accounts.
Although internal control procedures of most firms prevented Ponn from making cash withdrawals before the bank transfers were confirmed, he was able to withdraw $300 during the scheme. And, the $2.9 million in fraudulent securities purchases caused the brokerage firms to suffer net trading losses of approximately $26,000, while putting them at risk for much more.
On 12/7/16, Ponn pled guilty to 3 counts of wire fraud in the parallel criminal action.. The SEC's litigation against Ponn continues. [SEC Compliant]