Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, March 7, 2008

SEC Obtains Emergency Order Against Unregistered Day-Trading Firm

The SEC obtained an emergency court order against Tuco Trading, LLC, an unregistered securities day-trading firm in La Jolla, Calif., that was not disclosing to traders that more than one-third of their money was being used to cover other traders' losses or pay firm expenses. The SEC's complaint alleged that approximately 35 percent of their equity was diverted, leaving an approximately $3.62 million shortfall in the traders' equity as of Dec. 31, 2007. In issuing the emergency orders, the court found that the SEC had shown that the day-trading firm was violating the broker-dealer registration and antifraud provisions of the federal securities laws, and ordered the appointment of a temporary receiver to safeguard customer assets.

According to the SEC's complaint, the defendants provide securities day-trading capability to more than 250 traders who had approximately $10.2 million invested in Tuco. They permitted traders to day-trade securities in Tuco's own brokerage accounts at registered broker-dealers through sub-accounts created at Tuco for each trader.  The defendants enticed traders with services unavailable at a registered broker-dealer. As alleged in the complaint, they allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading and allowed the traders at Tuco to have a 20:1 buying power. NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power.

http://lawprofessors.typepad.com/securities/2008/03/sec-obtains-eme.html

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