A former trader with Stamford-based Rochdale Securities L.L.C.has  pleaded guilty to fraud and conspiracy charges  in connection with a stock purchase that ultimately led the brokerage firm to cease operations.
David Miller, a resident of Rockville Centre, N.Y., pleaded guilty to charges of wire fraud and conspiracy to commit securities and wire fraud before a federal magistrate in Hartford April 15. Miller is scheduled to be sentenced July 8 and faces a maximum prison term of 25 years.
According to court documents, Miller executed a trade for 1,625,000 shares of stock in Apple Inc. on behalf of a Rochdale Securities customer on Oct. 25, 2012, which was the same day Apple was to release its quarterly earnings statement.
However, prosecutors say the client claimed to have only ordered the purchase of 1,625 shares of Apple. Prosecutors claim Miller conspired with another individual to instead order 1,000 times the number of shares called for, with plans to either share in the profits or to claim human error if the stock’s price fell.
Prosecutors also say Miller defrauded another broker-dealer, convincing the second firm to take on a significant short position in Apple stock and placing the firm at risk of sustaining major losses.
“This defendant participated in a fraudulent scheme in which he would either reap huge profits through the unauthorized purchase of approximately $1 billion of Apple stock, or, if he faced huge losses, explain it away as simple human error,” said David B. Fein, U.S. Attorney for Connecticut, in a prepared statement. “This scheme caused catastrophic losses for his former employer and was unraveled by the FBI.”
Ultimately, Apple’s stock price fell after the company released its earnings report, causing Rochdale Securities to lose about $5.3 million. That loss brought the firm’s available liquid assets below regulatory limits required of broker-dealers, and Rochdale Securities subsequently ceased operations, according to the U.S. Securities and Exchange Commission, which levied parallel charges against Miller.
Fein said the Justice Department’s investigation is “ongoing.”
Miller reached a partial settlement agreement with the SEC April 15 that bars him from working in the securities industry or participating in any offering of penny stock.
