The SEC filed a complaint in the federal court in Manhattan charging two sales representatives with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act. The SEC alleged that the sales representatives obtained "hefty commissions for themselves" by using a fraudulent "in-and-out trading strategy" that led to significant losses for several customers. The SEC stated that the defendants violated antifraud provisions by (i) recommending a trading strategy to customers without any "reasonable basis" to believe that the strategy could deliver a profit for customers, and (ii) engaging in "churning" with regard to certain customer accounts, which involved selling securities in customers' accounts within two weeks of purchase and charging their customers a commission for each respective transaction.
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