SEC Charges Broker With Defrauding Florida Municipalities
December 29, 2009
The Securities and Exchange Commission charged Tuesday that a Texas broker reaped $14 million in commissions while churning the accounts of a Florida municipality and a water authority.
The SEC's complaint alleges that Harold H. Jaschke, a resident of Houston, while associated with the brokerage firm First Allied Securities, Inc., caused the City of Kissimmee, Fla., and the Tohopekaliga Water Authority to suffer “massive unrealized losses in their accounts through ”unauthorized and unsuitable trading.’’
Jaschke, affiliated with San Diego-based First Allied Securities, lied to both customers about his trading practices, the SEC said, including his excessive trading that had little or no regard for the customers’ investment objectives.
"Jaschke was unscrupulous with the municipalities' funds and ignored their interests for his own personal gain," said Rosalind Tyson, director of the SEC's Los Angeles Regional Office, in a statement.
The SEC's complaint, filed in federal court in Orlando, Fla., alleges Jaschke engaged in a high-risk, short-term trading strategy involving zero-coupon U.S. Treasury bonds that are very sensitive to interest rate changes. For example, if interest rates were to increase by only 1 percent, the value of a 30-year bond could drop by 25 percent.
According to the SEC's complaint, Jaschke's tack involved buying and selling the same bond within a matter of days, sometimes within the same day.
Jaschke also leveraged the two entities’ accounts using repurchase agreements to finance bond purchases that they otherwise would not have been able to afford.
The SEC alleges that Jaschke knew the municipalities' ordinances prohibited his trading strategy and required that their funds be invested safely.
According to the SEC's complaint, the bond market swung sharply in Jaschke's favor allowing the municipalities to close their accounts with a modest profit. If that had not happened, they could have lost about $60 million as a result of Jaschke’s misconduct.
The SEC's complaint seeks a permanent injunction against Jaschke engaging in similar conduct and disgorgement of his gains, with interest and a financial penalty.
In a related action, the SEC charged Jeffrey C. Young, First Allied's former vice president of supervision, with failing to reasonably supervise Jaschke
The SEC's action against Young suspends him from acting in a supervisory capacity for nine months and orders him to pay a $25,000 penalty.
Jaschke has not been employed by First Allied “for some time,” according to the company’s chairman, Joel Marks, reached Tuesday by Securities Industry News. The SEC complaint indicates that Jaschke was terminated in August 2008.
Young is still employed by First Allied, but not in a supervisory capacity, Marks said.
