The Securities and Exchange Commission charged a former broker Tuesday with trading leveraged ETFs and ETNs in customers' accounts and misappropriating $170,000 from one of his customers.
The SEC says that Demitrios Hall traded 179 daily leveraged exchange-traded funds and exchanged-traded notes in his customers' accounts between September 2014 and October 2015, generating $128,000 in commissions and fees, while his customers lost about $150,000.
The SEC also says that he misappropriated $170,000 from one customer and spent it on rent, bar and restaurant bills, credit card bills, and student loan payments.
"As alleged in our complaint, Mr. Hallas enriched himself by systematically disregarding his customers' investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them," said Andrew M. Calamari, director of the SEC's New York regional office and co-chairman of the enforcement division's broker-dealer task force. "As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them."
According to the SEC complaint, Mr. Hallas' customers were unsophisticated. They had limited or no investing experience and their incomes, net worth levels, and their assets were modest. One customer gave Mr. Hallas his retirement savings from working as a baker, taxi driver and garbage truck driver. Another was a retired human resources officer for a religious organization. A third was a boiler technician. Mr. Hallas didn't discuss his trading strategies or his trades with them. Another customer was an interpreter, and another was a retired college administrative assistant.
Most highly leveraged ETFs and ETNs are deemed unsuitable for unsophisticated investors, and it's generally a mistake to hold them for longer than a few days. Mr. Hallas held two such positions for more than five months, the complaint alleges.
Mr. Hallas worked for several brokerages during the period he is charged with defrauding customers. The brokerages included Santander Securities, Forefront Capital Markets and PHX Finanical. He's not currently registered with a broker-dealer.
The SEC's complaint charges Mr. Hallas with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint seeks a permanent injunction as well as the return of ill-gotten gains plus interest and penalties.