The Securities and Exchange Commission today charged a Miami, Fla., resident for fraudulently operating an unregistered securities day trading firm that primarily targeted investors in the Hispanic community.
According to the SEC's complaint, Ricardo H. Goldman held investment seminars in Spanish, which he advertised in Spanish periodicals, and enticed traders to invest in the day trading operation he ran through his company, E Trade Fund LLC. The SEC alleges that Goldman misrepresented the safety and security of day trading through E Trade Fund, misleading traders into believing that their trading accounts were secured by the Securities Investor Protection Corporation (SIPC) and that they would be better protected against certain losses or risks by trading with E Trade Fund. However, E Trade Fund's traders ultimately lost about $1 million out of the $2.1 million they originally invested.
"In addition to serving as a reminder that the SEC will aggressively pursue affinity frauds, this case should caution the public about the risks of trading securities with unregistered broker-dealers," said David Nelson, Director of the SEC's Miami Regional Office.
According to the SEC's complaint, filed in federal district court for the Southern District of Florida, Goldman provided securities day trading capability to E-Trade Fund's more than 110 traders beginning approximately in May 2004 until at least February 2006. Goldman permitted them to day trade securities in E Trade Fund's own brokerage account at a registered broker-dealer through sub-accounts created for each trader. Goldman failed to disclose to traders that E Trade Fund earned monthly commission rebates based on the number of trades investors executed in their trading accounts. Furthermore, Goldman failed to disclose that he was criminally convicted for grand theft and forgery in 1994 even though E Trade Fund's Web site touted his professional experience and reputation.
The SEC's complaint also alleges that at the same time Goldman ran the day-trading operation, he offered and sold other investments in E Trade Fund, which he characterized as certificates of deposit. The rates of return of these securities ranged from 5 to 10 percent annually on a 6-month certificate and 7 to 12 percent annually on a 12-month certificate. Goldman offered these investments to the public through an affiliated Web site.
According to the SEC's complaint, Goldman misrepresented to investors that these certificates were insured and protected by the Federal Deposit Insurance Corporation (FDIC) and SIPC. He also falsely told investors that the returns on the certificates were "secured" and "guaranteed" when, in fact, the funds from the sales of these certificates were used solely to sustain E Trade Fund's high-risk day trading operation and the returns were based on its success. The complaint also alleges that Goldman violated the securities registration provisions in connection with the offer and sale of these certificates. Goldman raised about $317,000 from at least two investors through the sale of the certificates.
In its complaint, the SEC seeks a permanent injunction, disgorgement plus prejudgment interest, and a financial penalty against Goldman, who has agreed to settle the permanent injunctive portion of the SEC's civil action without admitting or denying the SEC's allegations. The partial settlement leaves unresolved the issue of disgorgement and a penalty.
E Trade Fund is not affiliated with E*TRADE FINANCIAL Corporation, the broker-dealer that is registered with the SEC.
