10 CW 2217
UNITED STATES·DJSTRlCl' COURT .-J~- .... -
SOUTHERN DISTRICT OF NEW YORK
U.S. SECURITIES AND EXCHANGE COMMISSION, :
Plaintiff,
vs.
BROCO INVESTMENTS, INC. and
VALERY MALTSEV,
Defendants.
COMPLAINT
Plaintiff United States Securities and Exchange Commission ("Commission")
alleges as follows:
SUMMARY
1. The Commission files this emergency action to halt an ongoing fraud by .
BroCo Investments, Inc. ("BroCo") and its president, Valery Maltsev ("Maltsev"). This
action alleges violations of the federal securities laws by Maltsev, BroCo, and/or
individuals acting in concert with them, by repeatedly hijacking the online brokerage
accounts of unwitting investors using stolen usemames and passwords and subsequently
placing unauthorized trades through the compromised accounts. In almost every
instance, prior to intruding into these accounts, using an account they controlled at
Genesis Securities LLC ("Genesis"), the Defendants acquired positions in the same
securities that were the subjects of the unauthorized trades in the compromised accounts.
Minutes after acquiring these positions, and without the compromised accountholders'
knowledge, the Defendants, and/or individuals acting in concert with them, placed scores
of unauthorized buy orders at above-market prices using the compromised accounts.
After these unauthorized buy orders were placed, the Defendants sold the positions held
in their own account - positions they had established only moments earlier - at the
artificially inflated prices. In other instances, the Defendants profited by covering short
positions previously established in their account while placing unauthorized sell orders
through the compromised accounts at substantially lower prices. From August 2009 to
the present, these transactions have created the appearance of legitimate trading activity
and have artificially affected the prices of at least thirty-eight issuers.
2. From August 2009 to December 2009, as a result of coordinating their
own trades with those effected during the unlawful intrusions into online brokerage
accounts, the Defendants realized unlawful trading profits of at least $255,532. Online
broker-dealers whose customers' accounts were compromised during that time period
suffered losses of at least $603,000 as a result ofthe Defendants' fraudulent conduct.
3. On February 26,2010, BroCo attempted to withdraw $110,000 from its
Genesis account via wire transfer. Then, on March 2, 2010, BroCo attempted to
withdraw an additional $200,000 from the account via wire transfer. Both withdrawals
requested that the funds be wired BroCo's bank· account in Cyprus. Genesis has not yet
processed these requests.
4. By virtue of their conduct, the Defendants have engaged in and, unless
enjoined, will continue to engage in, violations of Section 17(a) of the Securities Act of
1933 ("Securities Act") [15 U.S.C. § 77q(a)] and Section lOeb) of the Securities
Exchange Act of1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule IOb-5
promulgated thereunder [17 C.F.R. § 240.l0b-5].
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JURISDICTION AND VENUE
5. The Commission brings this action, and this Court has jurisdiction over
this action, pursuant to authority conferred by Sections 20(b), 20(d) and 22(a) ofthe
Securities Act [15 U.S.C. §§ 77t(b), 77t(a) and 77v(a)] and Sections 2l(d), 2l(e) and 27
of the Exchange Act [15 U.S.C. §§ 78u(d), 77u(e) and 78aa].
6. This Court has personal jurisdiction over the Defendants and venue is
proper in the Southern District ofNew York pursuantto 28 U.S.C. § 1391 (b)(2) because
a substantial part of the events or omissions giving rise to the claims occurred within this
District, and pursuant to Section 27 ofthe Exchange Act [15 U.S.C. § 78aa] because
some of the transactions, acts, practices, and courses of business constituting the
violations alleged herein occurred within this District.
7. The Defendants, directly and indirectly, have made use of the means and
instrumentalities of interstate commerce, and the means and instruments of transportation
and communication in interstate commerce, in connection with the transactions, acts,
practices, and courses of business alleged in this Complaint.
DEFENDANTS
8. Defendant BroCa Investments, Inc. was formed in April 2008 and is
located in St. Petersburg, Russia, according to account opening documents at Genesis,
where BroCo maintains a securities trading account. According to the company's
website, however, BroCo is located in Limassol, Cyprus.
9. Defendant Valery Maltsev is believed to be a thirty-six year old Russian
citizen residing in or around St. Petersburg, Russia. According to account opening
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documents at Genesis, Maltsev is BroCo's president and only officer, and has sole
trading authorization for BroCo's securities account.
FACTS
The Defendants' Account Intrusion Scheme
10. Beginning in at least August 2009 and continuing to the present, the
Defendants engaged in an elaborate scheme in which they manipulated, via account
intrusions, the markets for shares of at least thirty-eight issuers. The Defendants' modus
operandi was similar for each intrusion. The Defendants first purchased thinly traded
securities at the prevailing market prices using their own online brokerage account at
Genesis. Shortly thereafter, the Defendants and/or individuals acting in concert with
them, using stolen usemames and passwords, intruded into the online brokerage accounts
of unsuspecting individuals. The Defendants and/or individuals acting in concert with
them then used these intruded accounts to place a series of unauthorized buy orders (for
shares of the same issuers purchased only moments earlier in the Defendants' account),
typically at prices well above the prevailing market prices for those thinly traded
securities. Immediately or shortly thereafter, the Defendants capitalized on the
artificially inflated share prices of the targeted securities by selling the shares previously
acquired in their account. In other instances, the Defendants profited by covering short
positions previously established in their account while placing unauthorized sell orders
through the compromised accounts at substantially lower prices.
11. Unwitting accountholders were victimized in several ways. Securities
held in the victims' online brokerage accounts were oftentimes liquidated in order to
finance the unauthorized trading. Many times, the victims whose accounts were hijacked
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to make unauthorized purchases lost money when the securities returned to their premanipulation
prices.
12. Online broker-dealers whose customers' accounts were compromised and
used by the Defendants to make unauthorized trades suffered losses in excess of
$600,000. In addition, the Defendants' manipulative trading caused damage to
unknowing market participants who were attracted to the artificially inflated prices.
13. From August 17,2009 through the present, the BroCo account at Genesis
realized profits of at least $255,532 from its trading in the following thirty-eight
securities, at or around the time of unauthorized trading in compromised accounts:
Enterra Energy Trust, ExpressJet Holdings, Inc., Icagen, Inc., Catalyst Pharmaceutical
Partners, Inc., Akeena Solar, Inc., American Technology Corp., Comstock Homebuilding
Companies, Inc., Magellan Petroleum Corp., Amcore Financial, Inc., Majesco
Entertainment Company, Akorn, Inc., Synthesis Energy Systems, Inc., iGo, Inc., Biofuel
Energy Corp., WPT Enterprises, Inc., BMB Munai, Inc., China INSOline Corp., Alliance
Fiber Optic Products, 8x8 Inc., Active Power, Inc., Ante4, Inc., Antigenics, Inc., China
Direct Industries, Inc., EF Johnson Technologies, Inc., dELIA*s, Inc., Arotech Corp.,
First M & F Corporation, NewBridge Bancorp, Endwave Corporation, Rosetta Genomics,
Ltd., Cybex International, Inc., Vestin Realty Mortgage II, Inc., Clearfield, Inc., Parlux
Fragrances, Inc., Compton Petroleum Corp., Xerium Technologies, Newcastle
Investments Corp., and AmeriServ Financial, Inc. See Exhibit A, attached hereto.
14. On February 26, 2010, BroCo attempted to withdraw $110,000 from its
Genesis account via wire transfer. Then, on March 2,2010, BroCo attempted to
withdraw an additional $200,000 from the account via wire transfer. Both withdrawals
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requested that the funds be wired BroCo's bank account in Cyprus. Genesis has not yet
processed these requests.
15. The Defendants' trading in AmeriServe Financial Inc. ("ASRV") is
representative of the scheme employed by BroCo and Maltsev with respect to the shares
of the other thirty-seven issuers.
AmeriServe Financial, Inc.
16. AmeriServe Financial Inc. is a publicly traded, Johnstown, Pennsylvaniabased
bank. The company's shares are traded on the NASDAQ Global Market under the
symbol ASRV. From December 1 - December 20,2009, ASRV traded an average of
approximately 11,300 shares per day. On December 21,2009, trading in
ASRV increased more than twenty times, with 277,567 shares trading that day. At least
200,000 shares were bought or sold between BroCo's trades and the unauthorized trades
placed through compromised Scottrade accounts. On that day, ASRV opened at $1.60
per share and increased to an intraday high of$1.80 per share.
17. On December 21,2009, at 1:37 p.m. EST, BroCo bought 6,500 shares of
ASRV at a price of $1.51 per share.
18. Approximately one minute later, at 1:38 p.m., and continuing over the
ensuing ten minutes, three accounts at Scottrade, Inc. ("Scottrade") were illegally
accessed and, without the authorization or knowledge of the account holders, used to
purchase 102,200 shares ofASRV at prices ranging from $1.545 to $1.828 per share.
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19. From 1:39 p.m. until 1:49 p.m. - coinciding almost exactly with the
intrusion time period (1 :38 p.m. - 1:49 p.m.) - BroCo sold 80,000 shares ofASRV at
prices ranging from $1.70 to $1.80 per share.
20. The 73,500 shares BroCo sold in excess of what it had previously
purchased resulted in a short position.
21. Between 1:50 p.m. and 1:52 p.m., unauthorized trades were placed
through the compromised Scottrade accounts, resulting in the sale of73,500 shares at
prices ranging from $1.466 to $1.74 per share.
22. From 1:50 p.m. to 1:52 p.m. - coinciding exactly with the intrusion time
period - BroCo covered its short position, purchasing 73,500 shares ata price of $1.55
per share.
23. By trading shares ofASRV within minutes of unauthorized trading
through the compromised accounts, Maltsev and BroCo grossed $141,500 in
approximately fifteen minutes, realizing a net profit of$17,760. The unauthorized
purchase and sale orders in the intruded accounts during the ASRV intrusion resulted in
losses of $20,355.63 to the holders ofthe intruded accounts. In addition, Maltsev's
manipulative trading caused damage to market participants who purchased shares of
ASRV during the intrusion period.
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COUNT I
Violations of Section 17(a) of the Securities Act
[15 U.S.C. § 77g(a))
24. The Commission re-alleges and incorporates by reference paragraphs 1
through 23 above.
25. As set forth more fully above, the Defendants, by engaging in the conduct
described above, directly or indirectly, in the offer or sale of securities, by the use of
means or instruments oftransportation or communication in interstate commerce or by
the use of the mails:
(a) knowingly or recklessly employed devices, schemes or artifices to
defraud;
(b) knowingly, recklessly or negligently obtained money or property by
means of untrue statements of material fact or by omitting to state material facts
necessary in order to make the statements made, in the light of the circumstances under
which they were made, not misleading; or
(c) knowingly, recklessly or negligently engaged in transactions, practices or
courses of business which operated or would operateas a fraud or deceit upon the
purchasers of such securities.
26. By reason of the foregoing, the Defendants have violated Section 17(a) of
the Securities Act [15 U.S.C. § 77q(a)].
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COUNT II
Violations of Section lOeb) of the Exchange Act
[15 u.s.c. § 78j(b)] and Rule IOb-5 thereunder [17 C.F.R. § 240.10b-5]
27. The Commission re-alleges and incorporates by reference paragraphs 1
. through 23 above.
28. As set forth more fully above, the Defendants, by engaging in the conduct
described above, directly or indirectly, in connection with the purchase or sale of
securities, by the use of means or instrumentalities of interstate commerce, or of the
mails, or of a facility of a national securities exchange, knowingly or recklessly:
(a) employed devices, schemes or artifices to defraud;
(b) made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light ofthe circumstances under
which they were made, not misleading; or
(c) engaged in acts, practices or courses of business which operated or would
operate as a fraud or deceit upon other persons.
29. By reason ofthe foregoing, the Defendants have violated Section 1o(b) of
the Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5 thereunder [17 C.F.R. § 240. 10b-
5].
RELIEF REQUESTED
WHEREFORE, the Commission respectfully requests the Court:
I
Temporarily, preliminarily, and permanently restrain and enjoin the Defendants,
and each ofthe Defendants' agents, servants, employees, attorneys, and all persons in
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active concert or participation with them who receive actual notice of the injunction by
personal service or otherwise, and each of them, from future violations of Section 17(a)
of the Securities Act, Section lOeb) of the Exchange Act, and Rule IOb-5 thereunder;
II
Order the freezing of the Defendants assets and direct that all financial or
depository institutions comply with the Court's Order. Furthennore, order that the
Defendants immediately repatriate any funds held at any bank or other financial
institution not subject to the jurisdiction of the Court, and that they direct the deposit of
such funds into the registry of the Court, pending conclusion of this matter.
III
Order that the Defendants be restrained and enjoined from destroying, removing,
mutilating, altering, concealing, or disposing of, in any manner, any of their books and
records of documents relating to the matters set forth in the Complaint, or the books and
records and such documents of any entities under their control, until further order of the
Court.
IV
Order that the parties may commence discovery immediately, and that notice
periods be shortened to permit the parties to require production of documents and the
taking of depositions, on 72-hours notice.
V
Order the Defendants to disgorge an amount equal to the funds and benefits they
obtained illegally as a result of the violations alleged herein, plus prejudgment interest on
that amount.
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VI
Order the Defendants to pay civil penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) ofthe Exchange Act [15 U.S.C. §
78u(d)].
VII.
Grant such other and further relief as this Court deems just and proper.
Respectfully submitted,
Suzanne J. Romajas -4531)
Justin Chretien (Pro hac vice admission pending)
Thomas A. Sporkin
David R. Herman
Adam M. Schoeberlein
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549:'4030
(202) 551-4953 [Chretien]
(202) 772-9245 [Chretien Fax]
ChretienJ@sec.gov
Attorneys for Plaintiff
Dated: March 15, 2010
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Exhibit A
to Plaintiff s Complaint
EXHIBIT A
BroCo Transactions at or Around the Time of Intrusions
8/17/2009 ENT NYSE 6,900 $8,143 $8,694 $551
8/17/2009 CMZ NYSE 10,000 $10,400 $10,700 $300
8/19/2009 XJT NYSE 7,564 $12,202 $13,085 $883
8/27/2009 XRM NYSE 6,000 $6,660 $7,113 $453
9/10/2009 NCT NYSE 7,000 $10,239 $11,060 $821
9/10/2009 ICGN Nasda GM 2,998 $3,387 $3,717 $330
9/11/2009 CPRX Nasda CM 4,000 $4,448 $4,900 $452
9/14/2009 NCT NYSE 2,400 $3,861 $4,056 $195
9/23/2009 AKNS Nasda CM 5,000 $6,297 $6,850 $553
9/23/2009 ATCO Nasda CM 10,000 $15,500 $17,095 $1,595
9/28/2009 CHCI Nasda CM 15,000 $15,897 $17,407 $1,510
9/28/2009 MPET Nasda CM 31,741 $45,022 $48,900 $3,878
10/2/2009 MPET Nasda CM 30,000 $41,211 $44,699 $3,488
10/6/2Q09 AMFI Nasda GS 26,000 $38,572 $43,068 $4,496
10/6/2009 COOL Nasda CM 35,300 $49,229 $52,696 $3,467
1017/2009 AKRX Nasda GM 32,500 $41,687 $43,635 $1,948
10/8/2009 SYMX Nasda GM 40,500 $47,587 $53,764 $6,177
10/8/2009 IGOI Nasda GM 47,505 $57,948 $62,231 $4,283
10/13/2009 BIOF Nasda GM 78,000 $90,608 $107,125 $16,517
10/21/2009 WPTE Nasda GM 134,300 $147,962 $161,940 $13,978
11/2/2009 KAZ AMEX 22,500 $22,529 $24,525 $1,996
11/2/2009 CHIO Nasda CM 101,900 $103,409 $113,779 $10,370
11/5/2009 AFQP Nasda CM 114,340 $127,496 $144,582 $17,113
11/9/2009 EGHT Nasda CM 126,900 $144,935 $158,521 $13,586
11/10/2009 ACPW Nasda GM 156,229 $179,538 $199,916 $20,378
11/13/2009 ANTF OTCBB 44,600 $50,835 $53,903 $3,068
11/13/2009 AGEN Nasda CM 50,477 $53,740 $54,515 $775
11/16/2009 CDII Nasda GM 21,997 $31,651 $33,500 $1,849
11/16/2009 EFJI Nasda GM 51,792 $60,596 $65,775 $5,179
11/18/2009 DLIA Nasda GM 6,900 $13,455 $14,421 $966
11/18/2009 ARTX Nasda GM 50,000 $86,430 $93,400 $6,970
11/24/2009 FMFC Nasda GS 21,586 $47,474 $53,917 $6,444
11/25/2009 NBBC Nasda GS 59,304 $130,468 $147,073 $16,605
11/30/2009 ENWV Nasda GM 40,198 $94,063 $99,691 $5,628
1211/2009 ROSG Nasda GM 47,616 $99,993 $115,494 $15,501
121212009 CYBI Nasda GM 63,854 $78,246 $95,142 $16,896
12/9/2009 VRTB Nasda GS 62,100 $136,465 $149,036 $12,571
12110/2009 CLFD Nasda GM 28,701 $77,492 $83,519 $6,027
12/15/2009 PARL Nasda GS 45,338 $98,836 $108,811 $9,975
12/21/2009 ASRV Nasda GM 80,000 $123,740 $141,500 $17,760
Profits $255,532
• Note on 11/10/2009 ACPW: BroCo trading occurred almost exclusively before 1:45 p.m. (one trade at 3:59 p.m.) |