James Larkin Powers, of New York, New York, a stockbroker formerly registered with du Pasquier & Co., Inc., has been barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity according to a FINRA Extended Hearing Panel Decision containing findings that he participated in a fraudulent trading scheme, placed transactions in customer accounts without authorization, and caused the records and books of his firm to maintain false entries. Department of Enforcement v. James Larkin Powers, Disciplinary Proceeding No. 2014041985401 (Nov. 8, 2017).
According to the Decision, between January 1, 2014 and May 14, 2014, during which point Powers was an equity trader for du Pasquier & Co., he took part in a fraudulent scheme that involved the execution of eighteen bogus trades, where those trades were placed within customer accounts that he had control over. The Decision stated that Powers set the prices of those trades, and executed them for his own personal benefit, where there had been no corresponding market executions involving the securities.
Specifically, the Decision revealed that Powers was provided with three trading accounts to utilize by his firm, one of which was an average price account. The firm reportedly expected that the average price account would be utilized for the facilitation of trading on behalf of the firm’s customers rather than for securities to be purchased and held for Powers. Apparently, the sham trades were executed between Powers’ personal account and the average price account, which consisted of at least fifty-three thousand shares in eight stocks, where his transactions produced $388,000.00 in profits.
Evidently, in Powers’ scheme, one of two market executions did not take place that would normally have taken place in real market transactions effected within the average price account. In one case, on February 10, 2014, the average price account was utilized by Powers to buy 2,500 Tesla stock shares from the street at $210.32 for each share. Then, on February 24, 2014, while the firm still possessed a long position in Tesla, Powers bought 2,500 shares at $209.86 a share from the average price account to Powers’ personal account. The Decision stated that on February 25, 2014, a sale of those shares had been booked between his personal account and the average price account at $217.65 for each share, enabling Powers to generate a profit of $19,000.00. No corresponding market execution existed for those trades, according to the Decision.
In total, Powers executed the transfer of funds between the average price account and his personal account through buying the shares from the market first to be placed in the average price account, and then effecting a sale between the average price account and Powers’ personal account, where the securities were then sold to the average price account at higher prices, enabling a profit to be generated for Powers’ personal account. Evidently, Powers’ actions over a seven-month period led the average price account to incur at least $27,000.00 in margin interest charges, which was paid to a clearing firm, Pershing, by the firm instead of Powers.
The Decision additionally revealed that even though the trades Powers effected were not real, they still existed on paper and generated real profits for Powers’ personal account. The gains generated in that regard had come at the average price account’s expense. Powers reportedly crafted the bogus trades in order to generate paper gains within the average price account, and then realize them within his personal account even though he had not actually sold or bought securities in the market. FINRA’s Extended Hearing Panel found Powers’ conduct violative of FINRA Rules 2010, 2020, Securities and Exchange Act of 1934 Section 10(b), and Securities Exchange Commission (SEC) Rule 10b-5.
The Decision also stated that twelve unauthorized bookings of a $500,000.00 Netflix short position had been effected by Powers in nine of the firm’s customer accounts. Apparently, Powers executed the unauthorized bookings to conceal his losing positions so that if the market changed to his benefit, it would enable Powers to execute profitable trades that he initially intended. The Hearing Panel concluded that Powers willfully executed the trades without authorization for his own financial gain. As a result of booking and executing those trades, false orders and trade confirmations were entered in the firm’s systems, causing the firm to hold records and books that were not accurate in violation of Securities Exchange Act Section 17(a), and SEC Rule 17a-3. FINRA’s Extended Hearing Panel concluded that Powers’ conduct was therefore violative of FINRA Rules 2010 and 4511.
Powers’ registration with du Pasquier & Co., Inc. was terminated as of July 25, 2014. He was associated with Aegis Capital between July 18, 2014 and December 24, 2015; Celadon Financial Group LLC between January 13, 2016 and February 12, 2016; and IFS Securities between February 23, 2016 and September 13, 2016.
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