SEC v. Eduardo Hernandez; Christopher Flagg; Daquan Lloyd; and Corey Ortiz, No. LR-25967, Eastern District of New York (Apr. 4, 2024) — Press Release

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 25967 / April 4, 2024 Securities and Exchange Commission v. Eduardo Hernandez et al., No. 2:23-cv-08110 (E.D.N.Y. filed Oct. 31, 2023) SEC Charges Four Long Island Men With Perpetrating $2 Million “Free-Riding” Scheme The Securities and Exchange Commission announced that on October 31, 2023, it charged Eduardo Hernandez, Christopher Flagg, Daquan Lloyd, and Corey Ortiz, all currently or formerly of Long Island, New York, with fraud for perpetrating a multi-year “free-riding” scheme that generated more than $2 million in illicit profits. The SEC alleged that, from approximately November 2018 through January 2022, the defendants perpetrated a free-riding scheme, which is when a brokerage customer buys and sells securities without having the funds to pay for the trading. According to the complaint, the defendants opened and used unfunded brokerage accounts or loser accounts, to generate trading profits by engaging in matched trading with winner brokerage accounts that they also controlled. The complaint alleged that the defendants maintained the loser accounts at a broker that provided an instant deposit credit, which they used to fund the loser accounts’ trades with the winner accounts at manipulated prices, using thinly-traded options. The complaint also alleged that in doing so, the defendants essentially transferred the credit provided by the broker from the loser accounts to the winner accounts, accumulating guaranteed profits at the broker’s expense. All told, over the relevant period, defendants allegedly used at least 600 brokerage accounts to repeatedly conduct the fraudulent scheme. The SEC’s complaint, filed on October 31, 2023, in the U.S. District Court for the Eastern District of New York, charges Hernandez and Flagg with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and further violating these provisions by acting through or by means of another person in violation of Exchange Act Section 20(b); and charges Ortiz and Lloyd with aiding and abetting Hernandez’s and Flagg’s violations of Exchange Act Section 10(b) and Rules 10(b)(5) (a) and (c) thereunder. The SEC seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties. The SEC’s investigation was conducted by Cynthia A. Matthews, David Austin, Matthew Lambert, John Marino, Pat McCluskey, and Lindsay S. Moilanen of the New York Regional Office and the SEC Enforcement Division’s Market Abuse Unit, and was supervised by Joseph Sansone, Chief of the Market Abuse Unit. The SEC’s Office of Market Intelligence provided assistance. The SEC’s litigation will be conducted by Ms. Matthews and Christopher Dunnigan and supervised by Preethi Krishnamurthy. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the FBI. SEC Complaint

U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 25967 / April 4, 2024 Securities and Exchange Commission v. Eduardo Hernandez et al., No. 2:23-cv-08110 (E.D.N.Y. filed Oct. 31, 2023) SEC Charges Four Long Island Men With Perpetrating $2 Million “Free-Riding” Scheme The Securities and Exchange Commission announced that on October 31, 2023, it charged Eduardo Hernandez, Christopher Flagg, Daquan Lloyd, and Corey Ortiz, all currently or formerly of Long Island, New York, with fraud for perpetrating a multi-year “free-riding” scheme that generated more than $2 million in illicit profits. The SEC alleged that, from approximately November 2018 through January 2022, the defendants perpetrated a free-riding scheme, which is when a brokerage customer buys and sells securities without having the funds to pay for the trading. According to the complaint, the defendants opened and used unfunded brokerage accounts or loser accounts, to generate trading profits by engaging in matched trading with winner brokerage accounts that they also controlled. The complaint alleged that the defendants maintained the loser accounts at a broker that provided an instant deposit credit, which they used to fund the loser accounts’ trades with the winner accounts at manipulated prices, using thinly-traded options. The complaint also alleged that in doing so, the defendants essentially transferred the credit provided by the broker from the loser accounts to the winner accounts, accumulating guaranteed profits at the broker’s expense. All told, over the relevant period, defendants allegedly used at least 600 brokerage accounts to repeatedly conduct the fraudulent scheme. The SEC’s complaint, filed on October 31, 2023, in the U.S. District Court for the Eastern District of New York, charges Hernandez and Flagg with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and further violating these provisions by acting through or by means of another person in violation of Exchange Act Section 20(b); and charges Ortiz and Lloyd with aiding and abetting Hernandez’s and Flagg’s violations of Exchange Act Section 10(b) and Rules 10(b)(5) (a) and (c) thereunder. The SEC seeks permanent injunctive relief, conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties. The SEC’s investigation was conducted by Cynthia A. Matthews, David Austin, Matthew Lambert, John Marino, Pat McCluskey, and Lindsay S. Moilanen of the New York Regional Office and the SEC Enforcement Division’s Market Abuse Unit, and was supervised by Joseph Sansone, Chief of the Market Abuse Unit. The SEC’s Office of Market Intelligence provided assistance. The SEC’s litigation will be conducted by Ms. Matthews and Christopher Dunnigan and supervised by Preethi Krishnamurthy. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York and the FBI. SEC Complaint