David Miller, a former New York trader for Rochdale Securities, has been arrested today by federal agents and charged with wire fraud in an attempt to profit from a $1 billion purchase of Apple stock, according to CNBC.
Miller reportedly surrendered himself to the Federal Bureau of Investigation in Bridgeport, Connecticut and was charged with wire fraud relating to transactions that took place on October 25 - the same day Apple reported its fourth-quarter results.
The criminal allegations stacked against the 40-year-old former trader state Miller hoped to personally profit from trades that left his company holding more than 1.6 million Apple shares. Miller purchased the 1.6 million shares of Apple stock with Rochdale Securities' money the day Apple's fourth-quarter results were released, expecting the stocks to rise, but the plan backfired. Apple stocks fell and Rochdale Securities was left with a serious problem on its hands.
Miller told his employers it was an honest mistake, and that he had meant to purchase only 1,625 Apple shares, rather than 1,625,000, explaining the slip up was a result of multiple copies of the same order. As the shares were bought with his company's money, Rochdale bore the financial loss.
"In an attempt to protect himself against a fall in Apple's shares, Mr Miller also allegedly engaged in a hedging strategy by defrauding another broker," noted CNBC. Through "misrepresentations" it is alleged that Miller convinced an unrelated company to sell 500,000 Apple shares in order to conduct the larger get-rich-quick scheme at Rochdale's.
U.S. Attorney for the District of Connecticut David Fein commented, "As alleged, this defendant orchestrated the unauthorized purchase of approximately $1 billion of Apple stock in a fraudulent get-rich-quick scheme that backfired, causing massive losses for his employer."
He added: "I commend the FBI, with the substantial assistance of the SEC and FINRA, for its rapid response and for bringing this defendant to justice. The U.S. Attorney's Office and our many partners on the Connecticut Securities, Commodities and Investor Fraud Task Force are committed to protecting investors and the integrity of American capital markets."
As a result of Miller's illicit trading, Rochdale suffered $5 million in losses even after promptly trading out of the Apple positions.
"[Rochdale Securities] was plunged into a capital shortfall that has left it searching for capital to shore up its positions," said CNBC.
"The scheme was designed to generate profits by trading out of the position after Apple announced its earnings later that day. But after Apple's earnings announcement, the stock price fell," the complaint said.
To administer the hedge, Miller reportedly spent the days leading up to the share purchases claiming to a brokerage firm that he was leaving Rochdale for another trading company.
On Oct. 25, the day of the stock purchase, he told that brokerage company, which was not identified, to sell 500,000 Apple shares on his behalf. The broker, traded out of the positions at a profit the next day due to stock price decline.
If Miller is convicted he could face up to 20 years in prison. He appeared in front of a U.S. federal judge in Connecticut and was released on a $300,000 bond.
The investigation is ongoing. At this time the Rochdale Securities has yet to comment.
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