The Securities and Exchange Commission has charged a former employee of a brokerage in Connecticut with purposefully entering false orders on behalf of a client, a move which ultimately caused the brokerage to shut down due to losses.

David Miller, an institutional sales trader living in Rockville Centre, NY, worked at Rochdale Securities. He has agreed to a partial settlement of the SEC's charges, and is pleading guilty in a parallel criminal case.

The SEC alleges that he misrepresented to the firm that one of his clients wanted to buy 1.625 million Apple shares, at a cost of nearly $1 billion, ahead of an earnings announcement. The client would bear the results of any losses, he allegedly claimed.

In reality, the authorities say, the client authorized the purchase of only 1,625 Apple shares, and Miller was entering the inflated order in the hope Apple would rise, when he would participate in the gains himself through selling the shares.

However, Apple shares dropped after the October, 25, 2012 earnings release. Miller’s contingency plan in the case of a share-price fall was to claim he had made an error when making the trade, causing his firm to take responsibility.  

Rochdale sold the shares at a $5.3 million loss, causing its liquid assets to drop below the regulatory limit required of broker-dealers, and the firm closed operations soon after.

“This is a wake-up call to the brokerage industry that the unchecked conduct of even a single individual in a position of trust can pose grave risks to a firm and potentially to the markets and investors,” said Daniel Hawke, chief of the SEC enforcement division's market abuse unit.

In partially settling the SEC’s complaint, Miller agreed to be enjoined from future violations of the antifraud provisions of the securities laws. A financial penalty will be determined at a later date by the court upon the SEC’s motion.

In the criminal proceeding, Miller pleaded guilty to charges of wire fraud and conspiracy to commit securities fraud and wire fraud. He will be sentenced on July 8.

The SEC’s complaint charges Miller with violations of 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.