In addition, when she allocated a favorable trade to a personal or family account, she often locked in a day-trading profit by selling the stock by the following day, the complaint said. And conversely, the complaint continued, when Toroian allocated an unfavorable trade to a client account, she did not sell the position and incur a loss. “Rather, Toroian had the client account hold the security for a long period of time; thus, the negative first-day performance of that security did not appear on any account statement,” the filing said.
For example, the complaint stated, on Aug. 3, 2011, Toroian used the master trading account to make a series of trades to buy 15,000 shares of an ETF called Direxion Large Cap Bull 3X Shares. Those shares dropped by 2.8% before she allocated them, amounting to a one-day loss of about $30,000. Toroian allocated all those shares to client accounts, the filing said.
Toroian bought the same stock again six days later, this time buying 5,000 shares, the filing said, and those shares dropped 15.1% before she made the allocation, all to client accounts. That represented a $42,000 loss.
Then on Aug. 23, 2011, Toroian bought another 5,000 shares. This time the price increased 5.2% before she allocated it, representing a $12,500 gain, and this time she allocated all of the shares to personal and family accounts, the statement said.
Over the relevant time period, the securities that Toroian allegedly allocated from the master trading account to personal or family accounts increased in value by more than 2%—or more than $1 million—at the point of their allocation, the filing said. Meanwhile, the securities she allegedly allocated to client accounts dropped more than 1.3%—also more than $1 million—at the point of their allocation, the filing said.
“While some of the securities that Toroian allocated to the client accounts due to their poor first-day performance eventually turned a profit for the harmed investors, the investors’ returns were reduced because Toroian disproportionately allocated to client accounts trades that had performed poorly on the first day and disproportionately allocated to Toroian accounts trades that had performed well on the first day,” the SEC said.
The broker through which Bell Rock executed its trades became aware of what it considered abnormal activity in late 2015, and in February 2016 notified Bell Rock the relationship would be terminated in May 2016, the complaint said. At that point, Toroian and Bell Rock started working with a second broker that had restrictions on how master trading accounts could be used.
“In particular, the second broker did not allow Toroian to link her personal accounts to the master trading account,” the complaint said. “The first-day performance of securities Toroian purchased for [her personal and family accounts] and the client accounts became substantially similar after Toroian lost the ability to preferentially allocate favorable trades to her own account and to avoid unfavorable trades by allocating them to clients.”