The Securities and Exchange Commission (SEC) has recently leveled charges against former LPL Financial broker Andrew Komarow (CRD# 5838564), citing involvement in a high-stakes “free-riding” trading scheme. It is alleged that Komarow inappropriately traded a staggering $6.9 million, which he did not possess – a grave violation of SEC regulations.
The Unfolding of a Grand Scheme
The alleged scheme reportedly unfolded from October 2022 to January 2023 during which Komarow purportedly made unfunded transfers from multiple bank accounts to brokerage accounts across four firms. His alleged plan was to trade the unsettled cash in hopes of generating profit.
In one particularly audacious move, Komarow is said to have attempted a transfer of $2.4 million from a bank account which held only a balance of $100. Over the course of the scheme, Komarow is reported to have extracted at least $615,000 while the brokerages bore losses estimated over $3 million – these losses were due to trades in high-risk options.
Aftermath and Consequences
News of the SEC’s allegations against Komarow has stirred the finance industry. As part of a partial settlement with the SEC, Komarow has agreed not to open any brokerage account without first supplying the firm with a copy of the SEC’s court complaint and judgment. Furthermore, he is now prohibited from placing trades using unsettled cash.
However, much remains uncertain, with the SEC continuing to seek a bar and disgorgement in addition to civil penalties.
Ban from the Brokerage Industry
In June, just a few months prior to the SEC’s allegations, the Financial Industry Regulatory Authority (FINRA) had barred Komarow from the brokerage industry. The ban was due to investigations into allegations that Komarow “processed ACH instructions for his own account knowing there were insufficient funds, then improperly used credit to place trades, resulting in a negative balance.”
Over the course of his twelve-year career, Komarow held affiliations with the Royal Alliance Associates, Inc., West Hartford (Dec. 2022 – Jan. 2023), LPL Financial LLC (Apr. 26, 2016 – Dec. 22, 2022), and Pruco Securities, LLC (Oct. 29, 2010 – May 23, 2016).
What This Means for Investors?
Unscrupulous actions by financial brokers, as alleged in the case of Andrew Komarow, underscore the risks faced by investors and the need for vigilance. FINRA regulations are aimed at ensuring the best interests of clients (referred to as the fiduciary duty). However, investors are also urged to stay informed and demand clarification on any recommendations made by their advisors.
When brokers violate securities laws and undertake transactions that misuse client accounts, the associated brokerage firm might be held accountable for investment losses through FINRA arbitration. These firms may face liability for investment losses due to negligence over employee misconduct.
For investors who believe they may have suffered investment losses due to Andrew Komarow’s actions, consulting with a securities attorney may be a prudent move. They will be able to guide you through the legal process and explore the potentiality for recouping any financial losses incurred.