Investment Exec Charged With Obstructing SEC
Posted on Thursday, 28 of August , 2008 at 5:19 pm
NEW YORK— The president, CEO and chairman of the Executive Committee of Melhado, Flynn & Associates, a broker-dealer and investment advisor registered with the former National Association of Securities Dealers, was arrested Thursday morning and charged by indictment with securities fraud and altering documents to obstruct a U.S. Securities and Exchange Commission (SEC) examination.
George M. Motz, 66, allegedly engaged in a fraudulent trade allocation scheme known as “cherry-picking from November 2000 to June 2005. Through this scheme, prosecutors say Motz generated virtually risk-free profits for MFA’s proprietary trading account and an advisory client hedge fund, Third Millennium Fund, L.P., at the expense of other MFA discretionary clients. Of the 204 trades MOTZ assigned to MFA’s proprietary trading account in the relevant time period, 202 were profitable. In the proprietary account alone, Motz allegedly generated approximately $1.4 million in profits as a result of the fraud scheme.
Prosecutors say as part of the charged scheme, Motz typically submitted stock “buy” orders to the MFA trading desk in the morning, without indicating the accounts to which those purchases should be allocated, and did not provide the trading desk with allocation instructions until later in the day – often shortly before the close of the market.
In effect, prosecutors say Motz purchased securities in the morning and then decided later in the day whether to sell the position and book the profit in either MFA’s proprietary trading account or the Third Millennium Fund, or to allocate the securities, often those that had depreciated in value during the day, to MFA’s discretionary client accounts. The indictment alleges that from November 2000 to September 2003, MFA’s proprietary trading account was the beneficiary of MOTZ’s scheme, and that from June 2003 to May 2005 the scheme favored the Third Millennium Fund. While Motz allegedly carried out his scheme, MFA’s discretionary account clients were falsely assured that, to the extent MFA engaged in proprietary trading on the firm’s behalf, the firm’s account would not be favored over the clients’ accounts.
The indictment also alleges that, in the fall of 2003, Motz and others altered trade tickets associated with MFA’s proprietary trading account in order to make it appear as though the trades in question had been allocated earlier in the trading day than they actually were allocated, thereby concealing the scheme from SEC examiners who were conducting an on-site examination of MFA’s New York office. The SEC filed civil charges against Motz and MFA in February 2007. 8-28-08
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Category: Business, Consumers, Courts, Crime, New York State
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