On July 2015, the SEC, through an administrative proceeding, issued an order making findings and imposing remedial actions, alongside with an order to cease-and-desist, against Paul Pollack and its fully-owned firm "Montgomery Street Research, LLC" for having pursued wash trading and unregistered brokerage activity.
According to the SEC, Paul Pollack (a former stockbroker) engaged, directly or through several different accounts, on 73 separate days between January 2011 and June 2012, in 258 washes trades on a certain penny-stock of an unspecified issuer ("Issuer A") - for which Paul Pollack and his fully-owned firm "Montgomery Street Research, LLC" had raised funds through 2 private placements. The SEC also sated that such placements were made in spite that Paul Pollack and his fully-owned firm "Montgomery Street Research, LLC" were not registered brokers.
According to the SEC, Paul Pollack (a former stockbroker) engaged, directly or through several different accounts, on 73 separate days between January 2011 and June 2012, in 258 washes trades on a certain penny-stock of an unspecified issuer ("Issuer A") - for which Paul Pollack and his fully-owned firm "Montgomery Street Research, LLC" had raised funds through 2 private placements. The SEC also sated that such placements were made in spite that Paul Pollack and his fully-owned firm "Montgomery Street Research, LLC" were not registered brokers.
Specifically, Pollack placed orders to buy (or sell) Issuer A's stocks in one of his accounts, and then simultaneously or within a short period of time entered sell (or buy) orders
for the same stock at the exact same price in the exact same or virtually identical quantities in
another of his accounts. Pollack engaged in this manipulative strategy repeatedly.
According to the SEC, these paired transactions:
- Had no economic impact on Pollack’s position in Issuer A;
- Applied upward pressure on the price of Issuer A stock;
- Created trading volume in an otherwise thinly traded stock.
Pollack had exclusive trading authority over at least ten online brokerage accounts at five broker-dealers. Seven of these accounts were in the name of three entities that Pollack solely-owned and controlled, including three accounts in the name of Montgomery Street; three accounts in the name of Toro Holdings; and one account in the name of Bhog Partners.
As it can be witnessed in the table above, Paul Pollack usually used different accounts to buy and sell the stocks, and placed the buy and sell orders with a difference of only a few seconds or a few minutes. In this date (15 August 2011), Paul Pollack was responsible for 99% of Issuer A's total traded volume.
During the 73 days in which Pollack pursued wash trading and therefore created a false or misleading
appearance of active trading in Issuer A's stock, Pollack bought (directly or through accounts he
controlled) a total of 487.569 shares and sold a total of 584.530 shares, achieving trading profits of
approximately 206 thousand dollars.
The SEC did not provide details on how such trading profits were achieved. However, it can be inferred from the SEC's description that Paul Pollack artificially increased Issuer A's stock price through wash trading, to then dispose his portfolio of Issuer A's stock at higher prices than he would have if no wash trading had occurred.
In addition to wash trading, the SEC also concluded that Paul Pollack and its fully-owned firm "Montgomery Street Research, LLC" acted as unregistered brokers.
In addition to wash trading, the SEC also concluded that Paul Pollack and its fully-owned firm "Montgomery Street Research, LLC" acted as unregistered brokers.
The SEC imposed a series of sanctions. Paul Pollack:
- Was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization
- Was prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter;
- Was barred from participating in any offering of a penny stock, including: acting as a promoter, finder, consultant, agent or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.
- And its fully-owned firm Montgomery Street were ordered to pay the SEC a total disgorgement of 342 thousand dollars (311 thousand dollars representing the profits gained from the manipulative actions and 31 thousand dollars in prejudgment interest).
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