Jury Rules in SEC’s Favor, Finds Former Suncoast Principal Liable for Securities Violations
FOR IMMEDIATE RELEASE
2006-125
Washington, D.C., July 27, 2006 — Jurors in Federal District Court in New York, N.Y. today returned a verdict in the SEC’s favor against former Suncoast principal David A. Zwick, and a verdict partially in the SEC’s favor against trader Terence J. O’Donnell. In the three-week trial before Judge John G. Koeltl, the SEC charged that Zwick participated in a fraudulent kickback scheme in which Suncoast, a registered broker-dealer, received order flow and trades at favorable prices from an employee of New York Life Insurance Company, Inc., in exchange for cash kickbacks and gifts.
The SEC alleged that over a 15-month period in 1998 and 1999, the New York Life employee directed trades totaling millions of dollars of securities to Suncoast at prices that were “off-market” or more favorable to Suncoast than were otherwise available in the market. This preferential treatment was therefore detrimental to New York Life, the SEC alleged.
In exchange for the trades, the New York Life employee was paid in cash and non-cash gifts. Zwick, the SEC alleged, procured, approved, and/or encouraged a Suncoast employee to give gifts and cash kickbacks, and knowingly or recklessly approved fraudulent prices on Suncoast trades with New York Life. O’Donnell, the SEC alleged in part, knowingly or recklessly executed most of the fraudulently priced New York Life trades.
“Kickback schemes pose a grave danger to markets, which depend on the expectation of fairness and impartial treatment. The SEC will continue to fight against favoritism to make sure that the market’s process of fair pricing is not impeded by fraudulent practices,” said SEC Enforcement Division Director Linda Chatman Thomsen.
The jury found Zwick liable on all counts, finding he violated Section 17(a) of the Securities Act of 1933 and aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5 – antifraud provisions of the federal securities laws. The jury found O’Donnell liable under Section 10(b) and Rule 10b-5 for aiding and abetting the fraudulent price markup scheme but found O’Donnell not liable on all other claims.
Contacts
Luis R. Mejia, (202) 551-4481
Chief Litigation Counsel, SEC Division of Enforcement
Antonia Chion, (202) 551-4947
Associate Director, SEC Division of Enforcement
Arthur S. Lowry, (202) 551-4918
Senior Assistant Chief Litigation Counsel, SEC Division of Enforcement
(Lead SEC Counsel at Trial)
Background on the case at http://www.sec.gov/litigation/litreleases/lr18096.htm
http://www.sec.gov/news/press/2006-125.htm
