SEC Charges Ex-Broker With Fraud

The Securities and Exchange Commission on Thursday charged a former Pacific Exchange trader with securities fraud for allegedly trying to avoid losing trades by claiming they were done by other investment firms.

The SEC said Edward R. Cox and his firm, Los Angeles-based Cox Securities, sought to assign responsibility for more than 1,000 losing trades worth more than $1.5 million to at least 34 investment firms.

As a “floor broker” at the exchange in downtown Los Angeles, Cox was a conduit between institutional investors seeking to buy or sell stocks and various investment firms on the other side of the transactions.

After receiving orders, Cox may have told some customers that trades were completed at certain prices, without first securing investment firms willing to buy from, or sell to, his clients, said Kelly Bowers, SEC assistant regional director of enforcement.

If those trades subsequently lost money--such as when a stock fell in price after clients were notified that they had sold at a higher price--Cox is alleged to have sought to assign the other side of the trade to another securities firm.

In cases where the other firm disputed that it had taken a trade, Cox would “continue to just put in new buyers or sellers, hoping maybe someone would [accept] it accidentally,” Bowers said.

The SEC alleges that by assigning losing trades to other firms over a 16-month period that ended in March 1998, Cox sought to avoid having to cover the losses himself.

The Pacific Exchange has agreed to absorb the losses, and no firms or investors lost money, Bowers said.

Cox was barred from the exchange last year after hearings held by the exchange.

Cox’s attorney, Mark Geragos, disputed the charges, saying Cox properly executed trades. In cases where either side claimed not to have authorized a trade, it was put into an “error account” and, with the blessing of the Pacific Exchange, randomly assigned to securities firms that were expected to absorb the losses as one of the costs of doing business, he said.

The exchange “knew what was going on at every point,” he said.

The exchange criticized Cox only after a large firm, unhappy that it was being assigned disputed trades, threatened to remove its business from the floor, Geragos said.

Cox, who was the exchange’s top-producing floor broker in 1997, handled “massive amounts of trades,” and the 1,000 disputed transactions are “a minuscule percentage of his total trades,” Geragos said.