U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19000 / December 15, 2004
SECURITIES AND EXCHANGE COMMISSION v. DAVID JAMES LESLIE, , Civil Action No. 04 CV 2166 (RMU) (D.D.C.) (filed December 15, 2004)
SEC SUES DAVID J. LESLIE FOR FRAUDULENT WASH SALES AND FREE-RIDING SCHEMES
The Securities and Exchange Commission today filed a settled federal court action in the United States District Court for the District of Columbia against David James Leslie ("Leslie"), a resident of Marietta, Georgia, alleging that Leslie engaged in two fraudulent trading schemes. The complaint alleges that in the first scheme, Leslie executed over 200 wash sales or matched orders in at least four different stocks between various brokerage accounts that he controlled. As alleged in the complaint, Leslie placed near-simultaneous matching limit orders to buy and sell the same security in two of the accounts that he controlled. These matching limit orders were often placed at prices that were away from the existing market price. Leslie was able to match up his orders at artificial prices by choosing relatively illiquid stocks and by trading those stocks in the less liquid after-hours market using the Instinet ECN. Leslie's trading operated as a fraud or deceit upon the market because the wash sales, along with the contrived prices at which they were traded, were reported to the market and thereby created a false appearance of market activity, and did not accurately reflect the supply and demand for the stocks he was trading.
In the second scheme, the complaint alleges that Leslie engaged in an unlawful "free-riding" scheme, in which he induced his broker to unwittingly assume the risks of his trading by misrepresenting or concealing the material fact that he was financing purchases in his cash account with the anticipated proceeds from the sale of the very same securities. In so doing, Leslie violated the federal securities laws (Regulation X) by willfully causing his broker to extend him credit in violation of the federal securities laws (Regulation T), because he obtained, received, and enjoyed the beneficial use of extensions of credit for the purpose of purchasing and carrying securities: (1) without there being sufficient funds in his cash account and without his intending in good faith promptly to make full cash payment in his relevant cash account when payment was due; and (2) by placing sell orders for such securities prior to making payment for the purchase of said securities.
Simultaneously with the filing of the complaint, Leslie consented, without admitting or denying the allegations of the Commission's complaint, to the entry of a final judgment that: (i) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, Section 7(f) of the Exchange Act and Regulation X promulgated by the Federal Reserve Board, and (ii) requires him to pay a civil penalty in the amount of $30,000.
http://www.sec.gov/litigation/litreleases/lr19000.htm
