The Securities and Exchange Commission (SEC) filed a complaint against Travis Treusch in connection with a fraudulent “free riding” scheme.
The complaint, filed in the Eastern District Court for the Eastern District of New York, alleges that from at least August 2020 to January 2022 (the “Relevant Period”), Treusch helped perpetuate an elaborate fraud scheme from which he and others profited illegal profits of at least $2 million at the expense of a brokerage firm (“Broker A”).
Treusch knowingly or recklessly helped Eduardo Hernandez and Christopher Flagg participate in a sophisticated version of a traditional “free riding” scheme. The Principals, with the help of Treusch, essentially stole “instant deposit” credits provided by Broker A and other broker-dealers that provided similar instant credits (“Similar Brokers”) and then abandoned the accounts that received the credits.
The scheme worked as follows: Principals turned these direct deposit credits into cash for themselves using a trading strategy that involved executing matched trades in illiquid options between unfunded loss-making accounts at Broker A (and Similar Brokers) and profits -Getting “winner” accounts on other broker-dealers. Because the Chiefs controlled both sides of these matched trades, they could execute these trades at artificial prices and repeatedly created trading profits in the Winner Accounts and trading losses in the Loser Accounts held at Broker A and Similar Brokers.
This respective trading strategy guaranteed profits at the expense of Broker A and Similar Brokers. For example, as directed by the Authorities, the Loser Accounts at Broker A were never funded by the account holders, despite the fact that those account holders represented to Broker A that they had sufficient funds in linked bank accounts. The Directors’ strategy generally allowed them to exhaust the direct deposit credits in the Loser Accounts at Broker A before Broker A became aware of the insufficient funds in the linked bank accounts.
When Broker A or Similar Brokers subsequently restricted trading in the Losing Accounts, the Principals (or their proxies) abandoned the Losing Accounts — leaving Broker A and Similar Brokers with the losses caused by trading in those Losing Accounts , using the direct credits of the accounts he had received. The Principals (or their proxies) then simply opened new Loser Accounts in which they continued to run the free-riding program.
Around August 2020, after the program had been running since around November 2018, the Directors hired Treusch into the program.
Treusch opened at least one Loser Account with Broker A for use in the scheme and recruited others to open additional brokerage accounts with Broker A or Similar Brokers to be used as Loser Accounts in the scheme.
Treusch recruited people to open brokerage accounts for use in the scheme by posting screenshots of Hernandez and Flagg’s profitable trades, along with offers for people to make quick and easy money, on social media such as Instagram. Treusch targeted individuals who would agree to open new accounts or provide access to existing accounts with Broker A or Similar Brokers for a nominal fee.
Treusch knew or recklessly ignored that the Chiefs used these Loser Accounts in connection with their trading program.
Treusch asked each of his recruits to open a Loser Account with Broker A or Similar Brokers and link the brokerage account to a bank account that was supposed to provide funding. However, as directed by the Directors, and as warned by the Chiefs, Treusch warned the Recruits not to leave money in their linked bank accounts so that there would be no money to transfer to the Loser accounts to fund those accounts.” . unprofitable negotiation.
Once the Recruits opened new accounts with Broker A or Similar Brokers, Treusch gave their account login credentials to the Principals so that the Principals could access and control the accounts and trade in the Recruits’ names. The Chiefs paid Treusch approximately $300 to $500 for each Loser Account he provided them, which they represented to be a portion of the trading profits generated in the Winner Accounts.
The Directors used brokerage accounts in their own names, as well as brokerage accounts in the names of non-qualified friends or family members (the “Nominees”) as Winner Accounts. Treusch also assisted the program by recruiting two Candidates to open accounts for use as Winner Accounts as part of the program.
During the relevant period, Treusch knowingly or recklessly activated the scheme by opening at least one Loser Account with Broker A, recruiting dozens of Recruits to open additional Loser Accounts with Broker A, and recruiting the two Treusch Nominees to open Winner Accounts through whose Principals conducted the trading system.
Treusch was compensated for each account he secured for use in the system.
The SEC alleges that the defendant aided and abetted the Directors’ violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”). [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]in violation of Exchange Act 20(e) [15 U.S.C. § 78t(e)].
Unless the Defendant is limited and enjoined, it shall engage in the acts, practices, transactions and business activities set forth in this Complaint or in acts, practices, transactions and business activities of similar type and subject matter.
The Commission seeks a final decision: (a) permanently prohibiting Respondent from violating Exchange Act Section 10(b) and Rule 10b-5 thereunder; (b) imposing a conduct-based injunction prohibiting Respondent from opening an account brokerage without first providing the relevant brokerage firm with a copy of the complaint filed by the Commission in that matter and any decision the Commission may make against him in that matter? (c) order Defendant to pay disgorgement and prejudgment interest pursuant to Sections 21(d)(3), 21(d)(5), and 21(d)(7) of the Exchange Act; [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and 78u(d)(7)]; (d) order Defendant to pay monetary penalties pursuant to Section 21(d)(3) of the Exchange Act; [15 U.S.C. § 78u-1(d)]; and (e) to order such other and further relief as the Court may deem just and proper.