WASHINGTON — The Securities and Exchange Commission yesterday charged a Houston-based broker with engaging in unauthorized and unsuitable trading on behalf of two Florida municipalities, putting them at risk of losing millions of dollars while reaping more than $14 million in commissions.
In a complaint filed in federal court in Orlando, the SEC charged that Harold H. Jaschke, while associated with the brokerage First Allied Securities Inc., “churned” the accounts of Kissimmee, Fla., and the Tohopekaliga Water Authority, and lied to both customers about his trading practices on their behalf.
Churning is a fraudulent practice that occurs when a broker engages in excessive trading in order to generate commissions and other revenue without regard for the customer’s investment objectives, according to the SEC.
“Jaschke was unscrupulous with the municipalities’ funds and ignored their interests for his own personal gain,” said Rosalind Tyson, director of the SEC’s Los Angeles regional office. “He lied to his customers, took advantage of their trust, and risked their financial well-being.”
Specifically, the SEC’s complaint alleges that Jaschke’s trading strategy involved buying and selling the same bond within a matter of days, and sometimes within the same day. The strategy involved trading zero-coupon Treasury bonds that were very sensitive to interest rate changes. For example, if interest rates were to increase by only 1%, the value of a 30-year bond could drop by 25%, the SEC said.
In a related enforcement action, the SEC announced it had settled charges with Jeffrey C. Young, First Allied’s former vice president of supervision, for failing to reasonably supervise Jaschke, among other things.