Securities Law Prof Blog

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

Tuesday, March 18, 2008

Unregistered Day-Trading Firm Enjoined

On March 17, 2008, a federal court permanently enjoined Tuco Trading, LLC, an unregistered securities day-trading firm in La Jolla, California, and its principal, Douglas G. Frederick, from future violations of the broker-dealer registration and antifraud provisions of the federal securities laws. Tuco and Frederick consented to the entry of the permanent injunctions without admitting or denying the allegations of the SEC's complaint, which alleged that the defendants provided securities day-trading capability to Tuco's over 250 traders who had approximately $10.2 million in reported equity balances at Tuco. The complaint alleged that Tuco provided traders with services not permitted at a registered broker-dealer. As alleged in the complaint, the defendants allowed traders to day-trade without meeting the $25,000 minimum equity requirement under NASD regulations for such trading. The complaint also alleges that for each $1 in the trader's sub-account, Tuco and Frederick allowed the traders at Tuco to use up to $20 of Tuco's equity, which had been invested by other traders, to purchase securities (20:1 buying power). NASD and NYSE regulations, however, only allow a day-trader to have 4:1 buying power

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