The U.S. Securities and Exchange Commission (SEC) recently charged a former broker with knowingly or recklessly trading unsuitable investment products in the accounts of five customers and misappropriating over $170,000 from one of those customers.
According to the SEC’s complaint, Demitrios Hallas is alleged to have repeatedly traded unsuitable investments in his customers’ accounts, exposing customers who were unsophisticated with limited or no investing experience and modest incomes, net worth levels and assets to a significant degree of volatility and risk.
In a little more than a year, Hallas allegedly traded 179 daily leveraged exchange traded funds (ETFs) and exchange traded notes (ETNs) — products that the SEC alleges are inherently risky, complex and volatile, and only appropriate for sophisticated investors — in the customers’ accounts, generating commissions and fees of approximately $128,000.
The net loss across all 179 positions was roughly $150,000. The agency further alleged that Hallas misappropriated over $170,000 in funds from one customer. Instead of investing the funds on the customer’s behalf, Hallas allegedly deposited the funds into his own personal bank accounts and spent them on personal expenses, including significant bar and restaurant bills, credit card and student loan payments, and rent.
Andrew M. Calamari, director of the SEC’s New York Regional Office and co-chair of the Enforcement Division’s Broker Dealer Task Force, commented:
As alleged in our complaint, Hallas enriched himself by systematically disregarding his customers’ investment profiles and repeatedly trading in risky, volatile products that were unsuitable for them. As reflected in this case and our recent case against two former JD Nicholas brokers, the SEC is very focused on brokers who seek to exploit their customers by willfully recommending unsuitable trades or strategies to them.
The SEC is seeking a permanent injunction, as well as the return of ill-gotten gains, plus interest and penalties.