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SEC Cracks Down On Alleged Fraudsters

Updated 6/3/2021 3 min read

The new year brought a lot of attention to the markets — and with the attention came calls for the Securities and Exchange Commission (SEC) to act as an enforcer.

In January, Senator Elizabeth Warren told CNBC, “To have a healthy stock market, you’ve got to have a cop on the beat… That should be the SEC… They need to step up and do their job.”

As the first quarter of the year draws to a close, the SEC appears to be doing just that — but the process is often cumbersome and investigations can last years before formal charges are filed.

The SEC appears to be using many of the tools it has at its disposal.

February brought two rounds of mass trading suspension. One day, the SEC suspended 47 stocks. A few days later, it suspended 15 more. The suspensions last 14 days each, during which time investors cannot buy or sell shares of the companies.

In early March, the SEC announced whistleblower awards totaling $7 million paid to individuals in three separate cases. You can find those press releases here, here, and here.

The latest actions taken by the SEC involve charges against individuals after years of investigation.

In this SEC press release, it states that it “charged James Roland Jones of Redondo Beach, California, with perpetrating a fraudulent scheme to sell what he called “insider tips” on the dark web.” Jones also faces criminal charges in Florida for his alleged activity.

In another release, the SEC states that it “obtained an asset freeze… to stop an alleged offering fraud and misappropriation.” According to the SEC, “Colorado Springs resident Tra Jay Scarlett … raised at least $3.2 million from investors … [for] an environmentally-friendly drink bottling and manufacturing company.” But the SEC alleged that Scarlett “never manufactured or bottled any beverages, never opened a bank account, and never operated in any way at all.”

The alleged fraud reached eight figures in another case. In this release, the SEC states that it “charged Jessica Richman and Zachary Apte, co-founders of uBiome Inc., a San Francisco-based private medical testing company, with defrauding investors out of $60 million.” The pair also face criminal charges in California.

Sometimes particular groups can be targeted. In this release, the SEC states that members of New Jersey’s Orthodox Jewish community allegedly “invested millions based on false claims about investments in real estate.” The SEC alleged that Seth P. Levine “raised millions of dollars from more than 60 investors… used misleading and false representations… provided investors with… false and inaccurate information…and, at times, forged signatures.” Levine also faces criminal charges in New Jersey.

The charges outlined above are the results of investigations that started as far back as 2016. As we’ve noted several times before, the wheels of justice often grind slowly.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”