Felon Who Ran Ponzi From Fraternity House Is Charged With Defrauding BDs

The SEC’s complaint charged Arbab and his five co-defendants — Tomas Javier Jimenez, 24, of Dunwoody, Georgia; Blake Douglas McKinney, 26, of Plymouth, Michigan; Mushfiqur Rahman, 21, of Jamaica, New York; John Ryan Shows, 25, of Atlanta, Georgia; and William Carl Spagnoli, 24, of Alpharetta, Georgia — with violating anti-fraud provisions of the federal securities laws.

The SEC is seeking permanent injunctive relief, conduct-based injunctions and civil penalties from all six defendants, along with disgorgement of ill-gotten gains and prejudgment interest from Arbab, Jimenez, Rahman, Shows and Spagnoli.

Without admitting or denying the allegations, Jimenez, McKinney and Shows each consented to judgments, which, subject to court approval, would permanently enjoin them from violating the charged provisions, impose injunctions on future brokerage activities and impose civil penalties. Jimenez and Shows each also consented to pay disgorgement and pre-judgment interest for their ill-gotten gains.

In some instances, Arbab’s co-defendants gave Arbab their brokerage account login credentials so he could personally engage in “freeriding” using their accounts, the complaint alleges. In other instances, Arbab coached individuals in real time via text messages about how to freeride using their own accounts.

“Securities traders who seek to cheat the market with fake deposits of money to make unfunded securities transactions will be held accountable for their deception,” according to Justin C. Jeffries, associate director of enforcement for the SEC’s Atlanta Regional Office. “Freeriding is not a victimless scheme, as broker-dealers form an integral part of the market and are protected from fraud under the federal securities laws.”

(Pictured: SEC headquarters in Washington; Photographer: Andrew Harrer/Bloomberg)