The Securities and Exchange Commission (SEC) filed charges against Andrew M. Komarow of Avon, Connecticut.
The SEC’s complaint accuses Komarow of running a fraudulent “free-riding” scheme in which he sought to make a profit by buying and selling securities without paying for them.
The complaint alleges that, from October 2022 to January 2023, Komarow engaged in a pattern of unfunded electronic transfers of funds from various bank accounts to at least ten accounts at four broker-dealers, knowing that he did not have sufficient funds in the bank accounts to cover transport.
The complaint also alleges that Komarow immediately began trading securities in brokerage accounts using funds that the brokerage firms temporarily allocated while the fraudulent transfers were pending. When these transfers did not take place, brokerage firms were left with trading losses.
According to the complaint, Komarow made false deposits totaling more than $6.9 million. Komarow’s trading was largely unprofitable: he removed at least $615,031 from the accounts, but left the brokerages with losses exceeding $3 million, avoiding recouping the losses himself.
Komarow, without admitting or denying the allegations in the SEC’s complaint, consented to the entry of a partial judgment, which conclusively enjoins him from violating the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and of Rule 10b-5 thereunder. .
The partial judgment also prohibits Komarow from opening any brokerage account without first providing the brokerage firm with a copy of the SEC’s complaint and final decision in this matter and prohibits him from trading securities without having settled cash in the account equal to or greater by the amount of transactions.
The partial ruling leaves up to a later court decision whether to order the disgorgement of Komarow’s ill-gotten gains plus prejudgment interest and a civil monetary penalty. The partial judgment also orders that Komarow be barred from serving as an officer or director of any public company for a period to be determined later by the court.
Komarow’s settlement offer is subject to court approval.