The Securities and Exchange Commission (SEC) has filed a complaint against Travis Treusch in connection with a fraudulent “free riding” scheme.
The complaint, filed with the New York Eastern District Court, alleges that from at least August 2020 through January 2022 (the “Relevant Period”), Treusch helped perpetuate a sophisticated fraudulent scheme from which he and others obtained illicit profits of at least $2 million at the expense of a broker-dealer firm (“Broker A”).
Treusch knowingly or recklessly helped Eduardo Hernandez and Christopher Flagg engage in a sophisticated version of a traditional “free riding” scheme. The Principals, with Treusch’s assistance, essentially stole “instant deposit” credits extended by Broker A and by other broker-dealers that provided similar instant credits (“Similar Brokers”) and then abandoned the accounts that received the credits.
The scheme operated as follows: The Principals converted these instant deposit credits into cash for themselves, by using a trading strategy that involved executing matched trades in illiquid options between unfunded loss-bearing “loser” accounts at Broker A (and Similar Brokers) and profit-taking “winner” accounts at other broker-dealers. Because the Principals controlled both sides of these matched trades, they were able to execute these trades at artificial prices and repeatedly generated trading profits in the Winner Accounts and trading losses in the Loser Accounts held at Broker A and Similar Brokers.
This matched trading strategy guaranteed profits at the expense of Broker A and Similar Brokers. For example, at the Principals’ direction, the Loser Accounts at Broker A were never funded by the account holders, despite those account holders representing to Broker A they had sufficient funds in linked bank accounts. The Principals’ strategy generally allowed them to exhaust the instant deposit credits in the Loser Accounts at Broker A, before Broker A learned of the insufficient funds in the linked bank accounts.
When Broker A or Similar Brokers subsequently restricted trading in the Loser Accounts, the Principals (or their proxies) abandoned the Loser Accounts — leaving Broker A and Similar Brokers with the losses generated by the trading in these Loser Accounts, using the instant credits the accounts had received. The Principals (or their proxies) then simply opened new Loser Accounts in which they continued to conduct the free-riding scheme.
In approximately August 2020, after the scheme had been running since approximately November 2018, the Principals recruited Treusch to the scheme.
Treusch opened at least one Loser Account at Broker A to be used in the scheme and recruited others to open additional brokerage accounts at Broker A or Similar Brokers to be used as Loser Accounts in the scheme.
Treusch recruited individuals to open brokerage accounts for use in the scheme by posting screenshots of Hernandez’s and Flagg’s profitable trading, alongside offers for people to make quick, easy money, to social media outlets, such as Instagram. Treusch targeted individuals who would agree to open new accounts or provide access to existing accounts at Broker A or Similar Brokers for a nominal sum.
Treusch knew or recklessly disregarded that the Principals used these Loser Accounts in connection with their trading scheme.
Treusch directed each of his Recruits to open a Loser Account at Broker A or Similar Brokers and to link the brokerage account to a bank account that would purportedly supply funding. At the Principals’ direction, however, and as the Principals had warned him, Treusch warned the Recruits not to leave any money in their linked bank accounts, so that there would be no money to be transferred to the Loser Accounts to fund those accounts’ unprofitable trading.
Once the Recruits opened new accounts at Broker A or Similar Brokers, Treusch gave their account log-in credentials to the Principals, so that the Principals could access and control the accounts and trade in the Recruits’ names. The Principals paid Treusch approximately $300 to $500 for each Loser Account that he supplied them, which they represented was a portion of the trading profits generated in the Winner Accounts.
The Principals used brokerage accounts in their own names as well as brokerage accounts in the names of unsophisticated friends or family members (the “Nominees”) as Winner Accounts. Treusch also assisted in the scheme by recruiting two Nominees to open accounts to use as Winner Accounts, as part of the scheme.
During the Relevant Period, Treusch knowingly or recklessly enabled the scheme by opening at least one Loser Account at Broker A, recruiting dozens of Recruits to open additional Loser Accounts at Broker A and recruiting the two Treusch Nominees to open Winner Accounts through which the Principals conducted the trading scheme.
Treusch was compensated for each account that he secured for use in the scheme.
The SEC alleges the defendant aided and abetted the Principals’ violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)], in violation of Exchange Act 20(e) [15 U.S.C. § 78t(e)].
Unless Defendant is restrained and enjoined, he will engage in the acts, practices, transactions, and courses of business set forth in this Complaint or in acts, practices, transactions, and courses of business of similar type and object.
The Commission seeks a final judgment: (a) permanently enjoining Defendant from violating Exchange Act Section 10(b) and Rule 10b-5 thereunder; (b) imposing a conduct-based injunction prohibiting Defendant from opening a brokerage account without first providing to the relevant brokerage firm(s) a copy of the Commission’s filed complaint in this matter and any judgment that the Commission may obtain against him in this matter; (c) ordering Defendant to pay disgorgement and prejudgment interest pursuant to Exchange Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and 78u(d)(7)]; (d) ordering Defendant to pay civil money penalties pursuant to Exchange Act Section 21(d)(3) [15 U.S.C. § 78u-1(d)]; and (e) ordering any other and further relief the Court may deem just and proper.
