Trader Waives Indictment and Pleads Guilty in Alleged Fraudulent Stock Scheme

A trader pleaded guilty to two counts of wire fraud and conspiracy to commit wire fraud in federal court after waiving indictment. U.S. v. Miller, No. 3:13-cr-00075, information (D. Conn., Apr. 15, 2013). Prosecutors accused the trader of two separate schemes to acquire unauthorized shares of Apple, Inc. This allegedly put a broker-dealer at risk of substantial loss, and it caused the trader’s employer to incur losses exceeding $5 million.

The defendant, David Miller, worked at Rochdale Securities LLC as a licensed institutional sales trader in Stamford, Connecticut. According to the criminal information, his responsibilities included “covering the accounts of certain institutional clients” and executing trades on behalf of those clients. Information at 1. Rochdale paid him in commissions based on those trades. Prosecutors described two separate schemes that led to the charges against him.

Conspiracy: The first charge against Miller involved allegations of a conspiracy between Miller and an employee of a client company, identified in the information as “Customer #1.” The alleged co-conspirator would submit orders for Apple stock on October 25, 2012, the day the company was expected to post its quarterly earnings report. The co-conspirator’s orders were, prosecutors argued, intentionally written in such a way that Miller could plausibly claim he read them wrong. After the co-conspirator wrote the number 125 on a buy order, Miller bought 125,000 shares of Apple, purportedly on behalf of Customer #1. By the end of the trading day, he had acquired over 1.6 million Apple shares.

The purpose, according to prosecutors, was to profit from the purchase without exposing Customer #1 to risk. If the stock increased in value, Miller and the co-conspirator could sell the shares. If the stock lost value, Miller could claim he made a clerical error and Rochdale would be stuck with the loss. Apple’s stock price declined after the earnings report, and the FBI reported that Rochdale incurred losses of more than $5.2 million as a result.

Wire Fraud: Prosecutors also charged Miller in connection with a second alleged scheme, which they said was intended as a hedge against losses from the first scheme. Miller allegedly made false statements to a broker-dealer, identified as “Broker #1,” falsely claiming that he had authority to trade on behalf of “Firm A.” He instructed Broker #1 to sell 500,000 Apple shares on Firm A’s behalf, which left Broker #1 in a short position. Broker #1 was apparently able to trade out of the short position, even making a profit in the process. Id. at 6. The key factors for prosecutors were the allegedly false statements and the exposure of Broker #1 to substantial risk of loss.

The Federal Rules of Criminal Procedure require prosecution by indictment for any felony with a possible sentence of more than one year in prison. The defendant may waive the right to an indictment in open court, in which case the prosecution may proceed by information.

Board-certified criminal defense attorney Michael J. Brown represents Texas defendants, fighting to ensure that the criminal justice system respects their rights and abides by the U.S. Constitution. He has practiced criminal defense in west Texas for more than twenty years, and before that he worked as an FBI agent and a federal prosecutor. Contact us today online or at (432) 687-5157 to learn more about how we can assist you in your legal matter.

Web Resources:

No. 3:13-cr-00075, U.S. v. Miller (PACER registration required), U.S. District Court, District of Connecticut
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Court Reviews Proof Requirements in Prosecution for Honest Services Fraud, Texas Criminal Lawyer Blog, March 25, 2013
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Texas Man Sentenced to Just Over One Year in Prison for Fraudulent Electronics Scheme, Texas Criminal Lawyer Blog, January 3, 2013

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