SEC Charges Virginia Man in Fraudulent “Free-Riding” Scheme

The Securities and Exchange Commission (SEC) has taken legal action against Chadd L. Evans from Fincastle, Virginia, for orchestrating a fraudulent scheme known as “free-riding.” In this scheme, Evans attempted to profit by engaging in stock trading without actually paying for the stocks.

According to the SEC’s complaint, Evans carried out this fraudulent activity between July 2020 and October 2020. He employed a deceptive pattern, transferring money from various under-funded bank and brokerage accounts to new accounts at other broker-dealers, fully aware that he did not have sufficient funds to cover these transfers. Subsequently, Evans promptly initiated trading in securities within the newly opened brokerage accounts, using funds that the brokerages had temporarily made available during the pending fraudulent transfers. However, when these transfers failed to go through, the brokerages suffered significant trading losses. The complaint reveals that Evans executed this scheme across five different brokerage firms, making false deposits totaling over $280,000 and placing nearly $1 million in trades. Unfortunately, Evans’s trading activities were not profitable, resulting in substantial losses incurred by the brokerages.

Without admitting or denying the allegations made in the SEC’s complaint, Evans has agreed to the entry of a final judgment, pending court approval. This final judgment would permanently restrain him from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Additionally, the judgment would prevent Evans from opening any brokerage account without first providing the brokerage firm with a copy of the SEC’s complaint and final judgment related to this matter. Moreover, Evans would be required to pay a $10,000 civil penalty as part of the settlement.

The SEC’s investigation into this case was conducted by Jack Easton, supervised by Kingdon Kase and Scott A. Thompson, and supported by trial counsel Judson Mihok under the guidance of Gregory Bockin.