SEC v. EDUARDO HERNANDEZ; CHRISTOPHER FLAGG; DAQUAN LLOYD; and COREY ORTIZ, No. 2:23-cv-08110, Eastern District of New York (Apr. 4, 2024) — Complaint

Joseph G. Sansone
Christopher J. Dunnigan
Lindsay S. Moilanen
Cynthia A. Matthews
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, New York 10004-2616
(212) 336-0061 (Dunnigan)
[email protected]

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE
COMMISSION,

                                             Plaintiff,

                        -against-

EDUARDO HERNANDEZ,
CHRISTOPHER FLAGG,
DAQUAN LLOYD, and
COREY ORTIZ,

                                             Defendants.

COMPLAINT

23 Civ. 8110

JURY TRIAL DEMANDED

Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against
Defendants Eduardo Hernandez (“Hernandez”), Christopher Flagg (“Flagg”), Daquan Lloyd
(“Lloyd”), and Corey Ortiz (“Ortiz”) (collectively “Defendants”), alleges as follows:
SUMMARY
1. This matter involves a sophisticated version of a traditional “free-riding” scheme
perpetuated by Defendants, all residents or former residents of and with ties to Copiague, New
York, from approximately November 2018 through January 2022, that resulted in profits of at least
$2 million at the expense of broker-dealer A (“Broker A”).

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2. “Free-riding,” in this instance, describes the fraudulent practice used by Defendants
to essentially steal an “instant deposit” credit extended by certain broker-dealers, by engaging in
matched trading in illiquid securities without ever funding the trading account to which the credit
was extended.
3. Here, Defendants engaged in free-riding by taking advantage of the instant deposit
credit feature of Broker A.  Defendants converted this instant deposit credit into cash for
themselves by using a trading strategy that involved executing matched trades in illiquid options
between unfunded loss-bearing “loser” accounts (“Loser Accounts”) at Broker A (and other broker-
dealers with similar credits) and profitable “winner” accounts (“Winner Accounts”) at other broker-
dealers.  Because Defendants controlled both sides of these matched trades, they were able to
execute these trades at artificial prices and repeatedly generated trading profits in the Winner
Accounts and trading losses in the Loser Accounts held at Broker A.
4. Defendants’ matched trading strategy guaranteed their profits at Broker A’s expense.
As described in more detail below, at Defendants’ direction, the Loser Accounts were never funded
by the account holders, despite those account holders representing to Broker A they had sufficient
funds in linked bank accounts.  Given the timing of the trading in the accounts, Defendants’ strategy
generally allowed them to exhaust the instant deposit credit in the Loser Accounts by the time Broker
A’s systems received notice of the insufficient funds in the bank accounts.
5. When Broker A subsequently restricted trading in the Loser Accounts, Defendants (or
their proxies) abandoned them, leaving Broker A with a loss equal to the trading losses generated in
these Loser Accounts and debited from the instant credit the accounts had received.  Defendants (or
their proxies) then simply opened new Loser Accounts in which they continued to conduct the free-
riding scheme.
6. Hernandez was the mastermind of the fraudulent scheme.

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7. Hernandez brought Flagg into the scheme early on and by at least July 2020, had
taught Flagg how it worked, allowing Flagg to become another principal executing the scheme.
Hernandez and Flagg (together, the “Principals”) each held Winner Accounts in his own name and
controlled and used Winner Accounts in the names of others with whom they had ties and whom
they had recruited to open accounts to trade in as well.
8. The Principals recruited at least one individual (“Recruit 1”) to open a Loser
Account at Broker A for use in the scheme.  Subsequently, at the Principals’ direction, Recruit 1
recruited additional individuals to open Broker A accounts.  Recruit 1 engaged in these efforts
through posting to social media outlets, such as Instagram, a screenshot of a profitable brokerage
statement alongside offers for people to make quick, easy cash.
9. Like Recruit 1, Lloyd and Ortiz’s role in the scheme was primarily in the recruitment
of account holders.  Lloyd and Ortiz (together “the Recruiters”) targeted individuals who would
agree to open new Broker A Loser Accounts or provide access to existing Broker A accounts for a
nominal sum (the “Recruits”).  The Principals, with the Recruiters’ knowledge, used these Loser
Accounts for engaging in the matched trading scheme.
10. The Recruiters directed their own Recruits on how to open Broker A accounts
and/or bank accounts, and to link Broker A accounts to bank accounts, purportedly to fund the
trading.  However, the Principals, directly and indirectly through the Recruiters, warned at least
some Recruits not to leave any money in the linked bank accounts, so that there would be no money
to be transferred to the Broker A Loser Accounts to fund those accounts’ unprofitable trading.
11. The Recruiters each provided their Recruits’ Broker A account login credentials to
the Principals, so that the Principals could access and control the accounts and trade in the names of
the opening account holders.  The Principals paid the Recruiters per account they provided, typically
$300-500.

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12. The Principals’ matched trading strategy worked as follows: in the Winner Accounts,
the Principals offered illiquid put option contracts for sale at highly inflated, non-market prices.  At
the same time, they bought those securities in the Broker A Loser Accounts at those inflated prices.
Almost immediately thereafter, the Principals executed trades in the Winner Accounts to buy the
options back from the Loser Accounts at the lower market price, closing out the transaction and
locking in profits for the Winner Accounts and the losses in the Loser Accounts.  In this way, the
Principals effectively transferred the instant deposit credit from the Broker A account to their
Winner Accounts.
13. The Principals used brokerage accounts in their own names and in the names of the
Recruiters as Winner Accounts, as well as brokerage accounts in the names of unsophisticated
friends and/or family (the “Nominees”).  The Principals told each Nominee that they (Hernandez
or Flagg) would trade in the Nominee’s account.  The Principals then generally directed the transfer
of the profits from the Winner Accounts to themselves, either directly or indirectly.  The Principals
essentially paid the Nominees a sum that purportedly was to represent the Nominees’ portion of the
trading profits.
14. All told, over the four-year period, from approximately November 2018 to January
2022 (the “Relevant Period”), Defendants used at least 600 Broker A Loser Accounts to conduct the
fraudulent scheme, earning net profits of more than $2 million, equivalent to the amount of net loss
Broker A suffered.
VIOLATIONS
15. By virtue of the foregoing conduct and as alleged further herein, Defendants
Hernandez and Flagg directly violated Section 10(b) of the Securities Exchange Act of 1934
(“Exchange Act”) [15 U.S.C. §§ 78j(b)] and Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-
5(a) and (c)] and further violated Exchange Act Section 10(b) and Rules 10b-5(a) and (c) by acting

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through or by means of another person in violation of Exchange Act Section 20(b) [15 U.S.C.
§ 78t(b)].
16. Defendants Lloyd and Ortiz aided and abetted Defendants Hernandez’s and Flagg’s
violations of Exchange Act Section 10(b) and Rule 10b-5(a) and (c), in violation of Exchange Act
20(e) [15 U.S.C. § 78t(e)].
17. Unless Defendants are restrained and enjoined, they will engage in the acts, practices,
transactions, and courses of business set forth in this Complaint or in acts, practices, transactions,
and courses of business of similar type and object.
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
18. The Commission brings this action pursuant to the authority conferred upon it by
Exchange Act Sections 21(d) and (e) [15 U.S.C. §§ 78u(d), (e)].
19. The Commission seeks a final judgment: (a) permanently enjoining Defendants from
violating Exchange Act Section 10(b) and Rule 10b-5 thereunder; (b) imposing conduct-based
injunctions prohibiting (i) each of Hernandez and Flagg from, directly or indirectly, trading securities
in any brokerage account he owns, controls, or has access to that does not have settled cash equal to
or greater than the amount of the securities trade(s); and (ii) each Defendant from opening a
brokerage account without first providing to the relevant brokerage firm(s) a copy of the
Commission’s filed complaint in this matter and any judgment that the Commission may obtain
against him in this matter; (c) ordering Defendants to pay disgorgement and prejudgment interest
pursuant to Exchange Act Sections 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)];
(d) ordering Defendants to pay civil money penalties pursuant to Exchange Act Section 21(d)(3) [15
U.S.C. § 78u-1(d)]; and (e) ordering any other and further relief the Court may deem just and proper.

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 JURISDICTION AND VENUE
20. This Court has jurisdiction over this action pursuant to Exchange Act Sections 21(d),
(e) and 27(a) [15 U.S.C. §§78u(d)-(e) and 78aa(a)].
21. Among other things, Defendants, directly and indirectly, have made use of the
means or instrumentalities of interstate commerce or of the mails or of the facilities or a national
securities exchange in connection with the transactions, acts, practices, and courses of business
alleged herein.
22. Venue lies in this District under Exchange Act Section 27 [15 U.S.C. § 78aa].
Certain of  the acts, practices, courses of  business and transactions constituting the violations alleged
herein occurred within this District, including that Defendants were each residents of this District
during all or part of the time that they conducted the fraudulent scheme, engaged in trades while
located in this District, and that they withdrew from and/or deposited cash into branches of
financial institutions located within this District in connection with the fraudulent scheme.
DEFENDANTS
23. Eduardo Hernandez, age 33, is a resident of Lindenhurst, New York.
24. Christopher Flagg, age 28, is a resident of Copiague, New York.
25. Daquan Lloyd, age 28, is a resident of Copiague, New York.
26. Corey Ortiz, age 29, is a resident of Greensboro, North Carolina, and was formerly
a resident of Copiague, New York at various points prior to the commencement of the Relevant
Period, and was a resident of Babylon, New York, during part of the Relevant Period.
FACTS
A. Background
27. As described in the Summary section above, Defendants engaged in a sophisticated
and complex free-riding scheme that took systematic advantage of Broker A’s instant deposit credit

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to fund their guaranteed-to-be-profitable matched trading, at Broker A’s expense during the
Relevant Period.
28. As described in more detail below, by free-riding on the instant deposit credit at
Broker A to fund the trades matched with the trades in the Winner Accounts, Defendants were able
to essentially transfer Broker A’s instant deposit credit to the Winner Accounts that Defendants
controlled.
29. Defendants were limited in the amount of profit they could obtain from any one
Loser Account to the maximum instant deposit credit Broker A extended it, here, $5,000 as
described below.
30. Once the instant deposit credit was exhausted, the account was useless, because
Defendants had no intention of funding the account and because Broker A, once it learned there
were insufficient funds available to fund the trading, froze the account, ultimately closing it entirely.
31. Accordingly, in order to perpetuate the scheme and the flow of profits, Defendants
needed more Recruits to open new Loser Accounts in which to trade – they “need[ed] to find more
‘Gold’,” meaning Loser Accounts at Broker A, in Hernandez’s and Flagg’s words.
32. Ultimately, Defendants churned through over 600 Broker A Loser Accounts.  From
approximately February 2020 through February 2021, at least 244 Broker A accounts were opened
and traded in, in connection with Defendants’ fraudulent scheme.  During that time frame, only 14
devices were used to access these 244 Broker A accounts for trading.
B. Defendants Establish Winner and Loser Accounts to Facilitate Free-Riding Scheme

1. Establishment of the Loser Accounts at Broker A

a. Broker A’s Account Types and Instant Deposit Credit
33. Broker A’s instant deposit credit feature gave account holders, upon initiating the
transfer of sufficient funds from their linked bank account to their Broker A account, immediate

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access to trading funds in the form of a credit.  Absent the instant deposit credit, these account
holders ordinarily would have had to wait for the transfer of such funds to clear before they could
trade.  The instant deposit credit was essentially a loan to the account holder to trade with, while
waiting for the funding of the account to be completed.
34.   During the Relevant Period, Broker A offered Broker A Gold (“Gold”), a
subscription service that offered account holders with a portfolio value of up to $10,000, margin
accounts and an instant deposit credit equal to the amount of the funds requested to be transferred
into the account up to $5,000.
35. The instant deposit credit became available to the account holder as soon as he or
she: (1) linked a bank account in their name to their Broker A account; and (2) initiated an ACH
funds transfer deposit (requesting a specific amount be transferred) from the linked bank account to
their Broker A account.
36. Broker A used a third-party platform to facilitate the linking of a customer’s bank
account to their Broker A account.  The platform required the Broker A account holder to enter
their bank account login credentials, thereby verifying the account holder’s control of the bank
account.  It then confirmed matching account details, such as account name, account type and/or
address, before linking the bank account to the Broker A account.
37. Once the account holder’s bank account and Broker A account were linked, the
account holder initiated the transfer of funds from the linked bank account to the Broker A account.
The account holder’s initiation of the funds transfers triggered Broker A’s deposit of the instant
credit into their Broker A account, allowing the account holder to trade while the transfer, a process
that could ordinarily take up to five business days to complete, was pending.
b. Broker A Account Opening and Account Holder Representations
38. Broker A account holders made several representations in connection with opening a

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Broker A account, pursuant to Broker A’s customer agreement (“Customer Agreement”).  As the
account application process was online and conducted through mobile applications, prospective
account holders agreed to abide by the conditions of the Customer Agreement by tapping or
clicking the “Submit Application” button on their phones or other devices, which functioned as the
electronic equivalent of the account holder’s signature.
39. Among other things, by entering into the Customer Agreement, Broker A account
holders, with respect to accounts Broker A opened on their behalf as owner of the account (“My
Account(s)”), represented and warranted to Broker A that:
40. “[T]here are sufficient funds in My External Account... [“an account I own at
another institution”] ... to cover the amount of the deposit to My Account.”
41. “I am solely responsible for keeping My Account numbers and PINS ... [ “PINS
shall mean My username and password”] ... confidential and will not share them with third parties.”
42. “[T]he information contained in this ... [Customer] Agreement, the account
application, and any other document that I furnish to ... [Broker A] ... in connection with My
Accounts is complete, true and correct,” ... and “that knowingly giving false information for the
purpose of inducing [Broker A] to extend credit is a federal crime.”
43.  “I ... agree not to allow any person to trade for My Account unless a trading
authorization for that person has been received and approved by [Broker A].”
c. Recruitment of Account Holders and Opening of the Loser Accounts,
Generally
44. Because the Principals’ scheme relied on taking advantage of the instant deposit
credit at Broker A (and similar credits at other broker-dealers), opening numerous Loser Accounts at
Broker A was a critical part of their scheme.
45. All of the Defendants played a role in opening the Loser Accounts at Broker A.
46. The Principals directly, or indirectly through the Recruiters, solicited the Recruits,

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individuals who had little trading experience and did not ask many questions.
47. The Recruiters frequently used social media outlets, like Instagram, to seek out new
Recruits through promises of easy cash.
48. The Principals both told at least Recruit 1 to tell Recruits that they could make
money by opening a Broker A account for Defendants to trade in and told Recruits this directly on
certain occasions.  The Principals, directly and through the Recruiters, paid the Recruits nominal
sums to open these accounts.  Each Defendant determined individually what amount he would pay
his own Recruits; amounts typically ranged from $25 to $300.
49. In addition to directing Recruits to set up a Broker A account, Defendants directed
Recruits to link their Broker A account to a bank account and assisted them in doing so when
necessary.  Linking bank accounts to the Broker A accounts was essential to obtaining access to the
instant deposit credit.
50. Defendants knew, or were reckless in not knowing, the nature of the representations
required of account holders to open accounts, having each held Broker A accounts, or accounts at
other broker dealers that granted instant deposit credit, in their own names prior to, and/or during
the Relevant Period.
d. Recruitment of Account Holders and Opening of the Loser Accounts by the
Principals and Recruit 1
51. The Principals, directly or through the Recruiters, directed Recruits to provide their
Broker A account login information.  The Principals then, with the knowledge of the Recruiters,
used the Broker A accounts to engage in a matched trading scheme.
52. For example, in the summer of 2020, the Principals directly recruited Recruit 1 by
offering an opportunity for Recruit 1 to make “easy money” if he opened a Broker A account for
them to trade in.
53. Recruit 1 had little trading experience and did not have a Broker A trading account at

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the time.  Recruit 1 agreed to open the account without asking any questions.
54. The Principals then directed Recruit 1 to set up and link a bank account to that
Broker A account.  They specifically warned Recruit 1 to make sure there were no funds in the
linked bank account, so that Broker A could not receive money from that account.  The Principals
directed Recruit 1 to provide them Recruit 1’s Broker A account login credentials; Recruit 1 did as
directed and was paid approximately $500 to do so.
55. Recruit 1 subsequently received notice from Broker A that Recruit 1’s Broker A
account balance had dropped to roughly -$4,000 and that Broker A planned to terminate the
account.  The Principals told Recruit 1 not to worry, that they had discovered a “loophole” in
Broker A’s systems, that Broker A would eventually terminate the account and that it would all
eventually “blow over.”
56. Shortly thereafter, Recruit 1 began recruiting others to open Broker A accounts for
the Principals to use to perpetrate the scheme.
57. Recruit 1 solicited additional Recruits by posting to social media outlets (such as
Instagram) a screenshot of a profitable brokerage statement that he received from a Principal,
alongside offers for people to make quick, easy cash.  Dozens of people responded to the posts and
agreed to give their existing accounts to, or to set up new Broker A accounts for, Defendants in
exchange for a nominal sum.
58. Recruit 1 further helped the Recruits set up online bank accounts - typically at banks
or digital banking services that had no minimum balance requirements or monthly fees and required
no credit check - to link to their Broker A accounts.
59. As Recruit 1 had been directed to do by the Principals, Recruit 1 in turn warned
Recruits not to leave any money in their linked bank accounts.
60. Through this activity, the Principals directly and indirectly, acting through the

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Recruits, made misrepresentations to Broker A with respect to the Recruits’ accounts, which they
controlled.
61. Specifically, the Principals misrepresented, directly and indirectly, that they had
sufficient funds in their linked bank accounts to repay any instant deposit credit extended to them
and that they were protecting the integrity of their accounts, in violation of the Broker A Customer
Agreement.
62. The Principals directly, and indirectly through Recruit 1, instructed Recruits not to
fund their linked bank accounts so that Broker A could not obtain repayment of the instant deposit
credit it had extended.
63. The Principals further directly, and indirectly through the Recruiters, obtained from
the Recruits control over the Recruits’ Broker A accounts, as unauthorized third parties in violation
of the Customer Agreement.
e. Recruitment of Account Holders and Opening of the Loser Accounts by the
Recruiters
64. The Recruiters each recruited dozens of people to open Broker A accounts and link
the Broker A accounts to online bank accounts.  Each provided the Principals with the account
login information for accounts in the names of the individuals that they had recruited for this
purpose.  The Recruiters were each paid an amount that they agreed upon with the Principals for
each account they provided to the Principals.  Each Recruiter determined what portion of the
amount he received from the Principals, would be paid to the Recruit.
65. For example, on February 20, 2021, Ortiz asked Hernandez if he needed any Broker
A accounts, to which Hernandez replied “yes.” Ortiz then responded that he “got one coming up”
and told Hernandez to “send that payment thru.”
66. Again, on March 5, 2021, Ortiz told Hernandez that he had “work” for Hernandez, a
code name for account login information, on information and belief, if Hernandez would “cashapp”

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him.
1
  When Hernandez told Ortiz to send the “work,” Ortiz texted Hernandez an email address, a
password and a code.  Hernandez agreed to pay Ortiz $500, which Hernandez sent via Cash App to
Ortiz in bitcoin later that day.
67. In addition, Hernandez told Lloyd that he traded in the Broker A accounts and that
he would “run up” the accounts.  For example, on or about December 22, 2020, Hernandez sent a
text message to Lloyd asking him if he had “work” ready for the next day.  When Lloyd indicated
that he did, Hernandez directed Lloyd to make sure to have the accounts ready to go because he was
“running work tomorrow and paying same day...”.  Hernandez told Lloyd that he planned to “be
blowing up ya phone in the morning by trading hours 10 am.”
68. Hernandez also told Lloyd that he (Hernandez) would only pay for a Broker A
account that gave instant deposits, that he could get money from the Broker A account only if the
instant deposit works and that the account was useless without the instant deposit.  For example,
later on December 22, 2020, Hernandez told Lloyd “if the works good same day pay.”  Lloyd
responded, “yes they verified bro I come correct”.  A few minutes later Hernandez told Lloyd that
Broker A is “now blocking everything, smh [sic]...”  Lloyd responded “[Broker A] blocked?” and
when Hernandez answered “yeah they are closing the account without warning” Lloyd texted, “well
these two are good so...”.  Lloyd then texted, “so u not giving me the money upfront because of
that” and Hernandez responds “Pretty much, I can’t pay out bands ... [on information and belief, a
specified amount of cash] ... if the work doesn’t even give the instant deposits that’s my point.  If
the instant deposit works then I can get the bread from them.  If it doesn’t it useless.”
69. Ortiz knew that Hernandez was using Broker A’s instant deposit credit to effect the
trading scheme: Ortiz knew that the Principals would only pay him for Broker A accounts that were

1
  Cash App is a peer-to-peer payment service that lets users quickly send and receive money
from their mobile devices.

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“good” – ones in which “the instant deposite [sic] went thru”.
70. Ortiz also knew that Hernandez would “run up” the Broker A accounts as part of
the scheme.  For example, on one occasion, on December 18, 2020, when Ortiz sought payment
from Hernandez for providing him with account credentials for a Broker A account, he told
Hernandez “It was good when I gave it to u.”  Hernandez responded to Ortiz: “the next morning it
was restricted before I even had a chance to use it.  Log in, you’ll see its not negative.”
71. Ortiz also acknowledged to Hernandez that he knew the existence of the Broker A
“loophole.”
72. The Recruiters’ role in opening new Broker A accounts provided substantial
assistance to the Principals by, among other things, allowing them to take advantage of the instant
deposit credit.
73. The Recruiters knew or were reckless in not knowing the Principals were using the
Loser Accounts as part of a trading scheme.
f. Defendants’ Control and Use of the Loser Accounts
74. Under Broker A’s protocols, when a potential account holder applied to open an
account, they provided an email address and set up a password.  Once the account application was
approved, the provided email became the username for the account and the account holder used the
established username and password to access the account.  The username was unique to the account
holder and could not be changed (nor could it be used as a username by any other account holder),
but the password and contact email addresses, to which notifications about the account were sent,
could be changed.
75. By early 2019, Broker A also used a two-factor authentication system to authenticate
or verify the account holder’s identity when an account holder attempted to log in from a new
device, or when the phone number or email associated with an account was changed; in that regard,

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Broker A would send a code to the account holder by text and/or email, which the account holder
would need to enter on their device to access the account.
76. As discussed above, the Principals obtained the account login information -
usernames and passwords – for the Broker A accounts in order to access the accounts both directly,
and from the Recruiters, who had obtained it from the Recruits.
77. By giving the Principals account login credentials, the Recruiters provided the
Principals with substantial assistance in executing their free riding scheme.
78. The Recruiters knew, or were reckless in not knowing, the Principals intended to use
the accounts for their free riding scheme.
79. After obtaining control of the account, the Principals converted most of the Broker
A accounts that they controlled to Broker A Gold accounts, allowing them to obtain up to generally
$5,000 in credit on each account.  The Principals initiated directly, or indirectly through the Recruits,
the funds transfer requests that triggered the instant deposit credit.
80. The majority of Broker A accounts used in the scheme initiated wire transfers of
funds from linked bank accounts approximating the $5,000 Broker A Gold limit.
b. Establishment of the Winner Accounts at Other Broker-Dealers
81. The Principals used online brokerage accounts in their own names as Winner
Accounts for the scheme.  These accounts were generally held at broker-dealers other than Broker
A, in order to conceal the Defendants’ role in the scheme and evade detection by Broker A.
82. The Principals recruited Nominees, directly and indirectly through the Recruiters, to
open accounts in their own names for the Principals to trade in.  Using Nominees further disguised
Defendants’ role in the free-riding scheme.
83. For example, Hernandez, through Recruit 1, solicited at least two Nominees and
Flagg solicited at least one Nominee himself.

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84. The Principals each told their respective Nominees, in sum and substance, that he
was a successful trader who could make profits for the Nominee by trading in the Nominee’s
account.  The Nominees, with the assistance of the Principals, set up brokerage accounts and ceded
control of them, providing the account login credentials to the Principals directly, so that the
Principals could trade in the respective accounts.
85. Specifically, Hernandez told his Nominees that he would day trade in their accounts
with his own money, which he wired into the brokerage accounts held in the Nominees’ names.
86. Flagg told his Nominee that he would trade the Nominee’s money for the Nominee
and used money that the Nominee deposited into the Nominee’s brokerage accounts to trade.
87. The Principals’ Nominees had no trading experience and understood generally that
the Principals were legitimate traders who traded in their accounts.
88. Hernandez conducted some of his trading in the Nominees’ accounts in the presence
of one or both of the Nominees, using each Nominee’s mobile phone to trade in the respective
accounts.
89. The Principals paid the Nominees what they told the Nominees was a percentage of
the trading profits in exchange.
90. The Recruiters also served as Nominees for the Principals.  The Recruiters set up, or
allowed the Principals to use their personal information to set up, brokerage accounts in their names
that they knew or were reckless in not knowing that the Principals would use as Winner Accounts in
the scheme.
91. For example, in a text message exchange between Lloyd and Hernandez, Lloyd sent
Hernandez a screenshot of email correspondence Lloyd received from a broker-dealer.  The
screenshot was of an email from the broker dealer approving Lloyd’s application to add option
trading strategies to a brokerage account in his name.  Hernandez responded to Lloyd that the email

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“...Seems legit.”  A second screenshot sent from Lloyd to Hernandez, shows Lloyd in the same
broker-dealer’s mobile app, in a section of the app that allowed Lloyd to link his bank account to the
brokerage account opened in his name (the “Lloyd Brokerage Account”) and initiate a funds transfer
from his bank account to the Lloyd Brokerage Account.  The Lloyd Brokerage Account had been
opened on April 29, 2021, and used as a Winner Account for the matched trading scheme, as
described below, beginning on May 5, 2021, for approximately one month, trading against at least 15
Broker A Loser Accounts.  As a result of the trading in the Lloyd Brokerage Account as a Winner
Account against the Broker A Loser Accounts, Broker A suffered losses of approximately $37,905.
92. By using these Nominee accounts, the Defendants were able to conceal the nature
and extent of, as well as their roles in, the fraud.
C. Defendants Engage in Matched Trading to Take Advantage of Instant Deposit
Credit

93. The Principals generally began to trade in the Broker A accounts opened by the
Recruits within days after an account was opened and almost immediately after the instant deposit
credit was available in the Loser Account.
94. Once trading began, they traded continuously until they had essentially exhausted the
instant deposit credit.  In most instances, in order to use the full instant deposit credit, the trading
began and ended on the day it started, before Broker A learned there were insufficient funds in the
linked bank account to fund the brokerage account.
95. In order to maximize profits in their scheme, the Principals primarily traded in stock
options.  A stock option, commonly referred to as an “option,” gives its purchaser-holder the right
to buy or sell shares of an underlying stock at a specified price (the “strike price”) prior to the
expiration date. Options are generally sold in “contracts,” which give the option holder the
opportunity to buy or sell 100 shares of an underlying stock. The 100 shares underlying a stock

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option contract can serve to provide leverage and the potential for greater profits than simply
purchasing the stock.
96. “Put” options are another form of options.  A “put” option gives the purchaser-
holder of the option the right, but not the obligation, to sell a specified amount of an underlying
security at a specified price within a specific time-period.  Selling, or “writing,” “put” options for
purchase by another market participant is one method of profiting when the writer believes that the
underlying stock price will rise in value.  If the price of the underlying stock rises above the put
option’s strike price, the option will be “out of the money” and cannot be exercised for a profit.
The writer of the put option keeps the money paid for the put option and profits from the
transaction.
97. The Principals sold illiquid put options at highly inflated prices from the Winner
Accounts they controlled to the Loser Accounts set up by the Recruits, in what appeared to be
arms-length transactions.  However, the Principals controlled both sides of the trades.
98. Often the underlying options were in the stock of companies that were the subject of
merger or takeover offers, which caused the price of existing options to initially rise or fall but then
typically trade within a narrow range after the announcement of the merger or takeover.  This
allowed the Principals to select put options to trade that were out of the money by a large margin
and for which there was limited liquidity.  This in turn allowed the Loser Accounts and the Winner
Accounts to “match” trades at prices which no rational market participants would trade.
99. After completing the initial sale of the out of the money put options from the
Winner Accounts to the Loser Accounts, the Principals then bought the options back from the
Loser Accounts to the Winner Accounts at a lower, non-inflated price.  This allowed the Winner
Accounts to reap the profits of the trade, while the Loser Accounts took the loss.

19
a. Mechanics of the Matched Trading, Generally
100. In connection with Defendants’ scheme, a typical matched trading transaction
worked as follows: a Winner Account would post a limit order on an exchange, offering to “sell to
open,” or short, several contracts in a particular series of put options.
101. A limit order allows the trader to set the minimum price at which they will sell (or
the maximum price for which they will buy) the options contracts.
102. The selected put options were thinly-traded and were usually deep out of the money.
Deep out of the money options generally trade at very low prices because they have minimal chance
of ever becoming in the money or obtaining any meaningful value.
103. Further, as described above, most of the securities’ issuers had been previously
announced as merger or takeover targets and thus those stocks would typically trade in a very
narrow range between the time the deal was announced, and the deal closed.  Options with these
characteristics usually sold for around $0.05-$0.10 per contract.
104. The Principals typically used the Winner Accounts to set the limit order at a price far
above normal market prices but within the allowed price range of the exchange-imposed bid-ask
spread,
2
 for options that generally sold in the $0.05-$0.10 range.
105. At the inflated price, the option would not typically sell, particularly given the low
volume of the selected option series, and the minimal chance that the underlying stock’s price would
fall enough to allow the put options to become valuable.
106. At the same time as the Winner Account’s “sell to open” limit order was listed by the
exchange; the Principals used the Loser Account to place an order to buy (“buy to open”) the exact

2
  Exchanges typically require as much as a $5.00 spread (i.e., $0.10 - $5.10) to be maintained by
designated market makers who made markets in those option contracts.

20
same put option series at or slightly higher than the limit price of the Winner Account’s sell to open
order.
107. Because no market participants were selling at lower prices, and no legitimate market
participants were interested in buying for such a high price, the exchange would automatically match
the trades placed by the Winner and Loser Accounts in a transaction, filling the sell order from the
Winner Account with the buy order from the Loser Account, giving the Winner Account a credit
for the trade.
108. The Winner Account would then typically cover the established short option
position at or near the more favorable, lower, market price, to generate a quick profit.
109. To close out the open options position, the Loser Account would place an offer to
sell those options contracts (“sell to close”) at or near market price, while at the same time, the
Winner Account would post a bid to buy (“buy to close”) the same number of contracts, from the
same options series, also at or near market price.
110. The exchange would again automatically match the trades placed by the Winner and
Loser Accounts, closing out the positions for both accounts.
111. These round-trip trades locked in the profits of the trade for the Winner Accounts
and the losses, in the same amount, for the Loser Accounts.
112. The Principals coordinated the trading in the Winner and Loser Accounts,
deliberately structuring the pricing and quantity of the trades in order to exhaust the up to $5,000
instant deposit credit they received in the Broker A accounts.
113. To further obfuscate their scheme, the Principals traded the same options series
between multiple accounts and multiple options series between single accounts.  In other words, the
Principals matched trades between a single or several issuers in one Winner Account and multiple

21
Loser Accounts, or between multiple Winner Accounts and one Loser Account, until the Loser
Account had exhausted the credit.
b. Examples of the Matched Trading Activity by the Principals
1. October 7, 2020 Hernandez SINA Trading
114. On October 7, 2020, Hernandez, trading in a brokerage account in his name held at
a broker-dealer other than Broker A (“Winner 1”), offered for sale certain SINA Corp. (“SINA”)
put options contracts with a strike price of $30.
115. At the time, SINA’s stock was trading at around $42.70.   The previous week, on
September 28, 2020, New Wave Holdings Ltd. had announced its proposal to acquire SINA for
$43.30 per share.  The put options did not have any trades in the market other than those that were
part of the scheme.
116. Since the put option strike price was significantly below the underlying stock price,
the options had little value – they were out of the money and illiquid.
117. Nonetheless, Hernandez put in his offer to sell the put options from the Winner 1
account at $4.50, significantly higher than the value of those options.
118. A Broker A Gold account (“Loser 1”) opened by a Recruit that had initiated a $5,000
funds transfer from its linked bank account and was funded by an instant deposit credit in the same
amount that day, bought the put options at the offered price.
119. Minutes after these trades, Hernandez, trading in the Winner 1 account, bought the
same put options back from the Loser 1 account at $0.25 per contract, earning profits of $850 for
the Winner 1 account.  The Loser 1 account suffered losses in the same amount.
120. Accounts in which Hernandez conducted the matched trading strategy accounted for
all trading volume in this SINA put option series that day.

22
2. October 16, 2020 Hernandez SINA Trading
121. On October 16, 2020, Hernandez, trading again in the Winner 1 account, offered for
sale SINA put options contracts of the same put option series at $3.90.  That day, those put options
did not have any trades in the market other than those that were part of the scheme.
122. The options were deep out of the money.  The price of the options order was again,
far above the value of the options.
123. That same day, a second Broker A Gold account (“Loser 2”) opened by a Recruit,
had initiated a funds transfer from its linked bank account for $5,000 and had received an instant
deposit credit in the same amount.
124. The Loser 2 account bought the put options at the offered price.  Minutes later,
Hernandez, trading in the Winner 1 account, bought the options back from the Loser 2 account at
$0.35 per contract, for a profit of $1,065, causing a loss to the Loser 2 account in the same amount.
125. Accounts in which Hernandez conducted the matched trading strategy, again,
accounted for all trading volume in this SINA put option series that day.
3. October 22, 2020 Hernandez VAR Trading
126.  On October 22, 2020, Hernandez, trading in the Winner 1 account, offered for sale
1 Varian Medical Systems, Inc. (“VAR”) put option contract with a strike price of $60, while VAR’s
stock was trading around $171.73 – again an out of the money option.  VAR had earlier received a
proposal to be acquired by Siemens Healthineers AG for $177.50 per share on August 2, 2020.
127. In the Winner 1 account, Hernandez placed a trade to offer to sell the put options at
$4.50.  That day, those put options did not have any trades in the market other than those that were
part of the scheme.
128. The options were deep out of the money.  The price of the options order was again,
far above the value of the options.

23
129. Also on that day, Hernandez had opened, or directed to be opened and linked to a
bank account, a Broker A Gold account in the name of a third party that he controlled (“Loser 3”),
and had initiated a funds transfer for, and received an instant deposit credit of, $5,000 in the Loser 3
account.
130. Hernandez bought the put options in the Loser 3 account at the inflated price he had
offered them from the Winner 1 account.
131. Then Hernandez, trading in the Winner 1 account, bought them back from the Loser
3 account that he was also trading, in minutes later at $0.25.  As a result of the matched trades
Hernandez conducted between two accounts that he controlled, the Winner 1 account gained a
profit of $375, while the Loser 3 account suffered losses in that same amount.
132. Accounts in which Hernandez conducted the matched trading strategy accounted for
nearly all trading volume in this VAR put option series on that day.
133. Each of the Loser 1, 2 and 3 accounts began trading moments after having initiated
funds transfers, and receiving Broker A instant deposit credits, of $5,000, and each exhausted its
respective credit – conducting the entirety of the account’s trading – that same date.
134.  The funds transfers for all three Loser Accounts were reversed within days, leaving
each account with a balance of at least -$4,990; thereafter, the accounts were abandoned, leading
Broker A to close them and absorb the losses.
4. November 20, 2020 Hernandez Nominee VAR Trading
135. In addition to the examples above where Hernandez executed trades in Winner
Accounts in his name, he further executed the matched trading strategy in Winner Accounts held in
the names of his Nominees.
136. For example, on or around October 22, 2020, at Hernandez’s direction, Nominee 1
opened a brokerage account for Hernandez to trade in (“Hernandez Nominee Account”).

24
137. A Broker A Gold account (“Loser 4”) was opened by a Recruit on November 15,
2020.  Five days later, on November 20, 2020, the Loser 4 account initiated funds transfers totaling
$5,000 from its linked bank account and consequently received instant deposit credit of $5,000.
138. That same date, Hernandez asked for and obtained the account login information for
the Hernandez Nominee Account from Nominee 1 by text.  Shortly thereafter Hernandez began
trading in the Hernandez Nominee Account and offered for sale certain VAR put option contracts,
with a strike price of $65.  At the time VAR’s stock was trading around $173.
139. On that date, in the Hernandez Nominee Account, Hernandez also offered for sale
certain SINA put option contracts, at strike prices of $17.50 and $25.00.  SINA’s stock was trading
at around $43.
140. Both the VAR and SINA put options were deep out of the money and thus had little
to no value.  Nevertheless, Hernandez selected highly inflated offer prices of $4.50 for the VAR put
options and between $4.20 and $4.90 for the SINA put options.  That day, those put options did not
have any trades in the market other than those that were part of the scheme.
141. The Loser 4 account bought the VAR and the SINA put options at the offered
prices.  The trades in the Loser 4 account were placed from the same IP address (i.e., the same
location) as was used for the Hernandez Nominee Account. Minutes later, Hernandez, trading in the
Hernandez Nominee Account, bought the VAR put options back from the Loser 4 account at
$0.25.
142. At or about the same time, Hernandez, again trading in the Hernandez Nominee
Account, bought the SINA put options back from the Loser 4 account at prices ranging from $0.05
to $0.10.
143. As a result of the trading on November 20, 2020, Hernandez’s total combined
profits were $4,930 in the Hernandez Nominee Account.  The trading in the Loser 4 account on

25
November 20, 2020, exhausted the $5,000 instant deposit credit Broker A had extended and resulted
in losses to the account of $4,930.
5. June 14, 2021 Flagg TARO Trading
144. Flagg executed the trading scheme through accounts in his name as well.  For
example, on June 14, 2021, Flagg, trading in a brokerage account in his name held at a broker-dealer
other than Broker A (“Winner 2”), offered for sale certain Taro Pharmaceutical Industries Ltd
(“TARO”) put options contracts with strike prices of $40 and $45.  At the time, TARO stock was
trading at around $75.77.
145. These put options were considered deep out of the money and thus had little to no
value.  Nevertheless, Flagg put in his offer to sell the put options from the Winner 2 account,
selecting highly inflated offer prices for the put options at between $1.00 and $2.50, many times the
values of those options.  That day, those put options did not have any trades in the market other
than those that were part of the scheme.
146. The same day, a Broker A Gold account (“Loser 5”) was opened by a Recruit and
linked to a bank account.  Shortly thereafter that day, the Loser 5 account initiated funds transfers
totaling $1,500 and consequently received an instant deposit credit in the same amount.  The Loser 5
account bought the TARO put options at the offered price.
147. Minutes after these trades, the Winner 2 account bought the same put options back
from the Loser 5 account at $0.10 per contract, earning profits of $1,270, resulting in the same
amount of loss to the Loser 5 account.
148. Two days later, on June 16, 2021, the funds transfers initiated by the Loser 5 account
were reversed due to insufficient funds in the linked bank account, resulting in a balance of -$1,470
in the Loser 5 account.  Thereafter the Loser 5 account was abandoned, leading Broker A to close it

26
and absorb the loss.  Accounts in which Flagg conducted the matched trading strategy accounted for
nearly all trading volume in these particular TARO put option series.
149. Flagg repeated this trading pattern in the Winner 2 account with other issuers’ put
options contracts and/or other Broker A accounts, generating additional profits in the account.
6. September 21, 2021 Flagg Nominee TARO Trading
150. Similar to Hernandez, Flagg executed the matched trading strategy in his Nominee
Winner Accounts in addition to accounts held in his name.
151. On or around September 21, 2021, at the direction of Flagg, Nominee 2 opened a
brokerage account for Flagg to trade in (the “Flagg Nominee Account”).  Flagg began selling deep
out of the money put options in the account the next day.
152. On September 27, 2021, Flagg, trading in the Flagg Nominee Account offered for
sale certain TARO deep out of the money put option contracts, with a strike price of $45, while
TARO’s stock was trading around $63.  These put options had little to no value.  Nevertheless,
Flagg selected offer prices for the put options at between $1.60 and $3.00, many times the values of
those options.  That day, those put options did not have any trades in the market other than those
that were part of the scheme.
153. Earlier that day, a Broker A Gold account (“Loser 6”) held by a Recruit that had
been opened and linked to a bank account previously, initiated funds transfer requests that caused
the Loser 6 account to be funded by an instant deposit credit of $5,000.  Using that credit, the Loser
6 account bought the put options contracts at the price that Flagg offered.
154. Minutes later, Flagg, trading in the Flagg Nominee Account, bought the TARO put
options back from the Loser 6 account at $0.10, earning profits of $1,125 in the Flagg Nominee
Account, resulting in that same amount of loss in the Loser 6 account.  Later, on September 27,
2021, however, funds transfers that had been initiated to the Loser 6 account in the amount of

27
approximately $2,300 were reversed due to insufficient funds in the linked bank account.  Accounts
from this scheme accounted for nearly all trading volume in TARO put options that day.
155. The Loser 6 account continued this trading pattern, using the Broker A instant
deposit credit to trade these and other issuers’ deep out of the money put contracts at inflated prices
with other Winner Accounts and generating additional losses, resulting ultimately in a balance of
approximately -$2,685.  Thereafter, the Loser 6 account was abandoned, leading Broker A to close it
and absorb the loss.
156. Flagg repeated this trading pattern in the Flagg Nominee Account with other Broker
A accounts and other issuers’ deep out of the money put contracts, generating additional profits in
the Flagg Nominee Account.  On September 29, 2021, Nominee 2, again at Flagg’s direction, wired
$6,700 from the Flagg Nominee Account to a bank account in Nominee 2’s name and later that
same day, at Flagg’s direction, sent $1,700 from that bank account, using her debit card, to Flagg via
Cash App.
D. Defendants Deceive Broker A and Act with the Requisite Scienter
158. Defendants deceived Broker A by essentially using the Broker A Loser Accounts and
the instant deposit credit extended them to pay the Winner Accounts the profits of the matched
trading, at Broker A’s expense.
159. Defendants intentionally deceived Broker A by soliciting and directing the Recruits
to open Broker A accounts in their own names, in order to conceal Defendants’ identity and
involvement in the accounts’ activity.
160. Defendants also intentionally deceived Broker A directly, and indirectly through the
Recruits, by making representations to Broker A in connection with opening the accounts that
Defendants knew to be false: specifically, that (1) the Recruits would have sufficient funds in their
linked bank accounts to repay the instant deposit credit Broker A had extended, when Defendants

28
directed the Recruits to make sure there were no funds in the linked bank accounts to repay that
credit; (2) the Recruits would obtain Broker A’s approval and authorization before allowing others
to trade in their accounts, when Defendants directed the opening of Broker A accounts with the
intent of trading in and controlling the accounts, under the guise of trading as the respective
Recruits; and (3) the Recruits would keep their usernames and associated emails confidential and not
share them with third parties, when Defendants directed the Recruits to provide their usernames to
them and changed the associated emails to those of Defendants’ own choosing so as to maintain
control, while concealing the extent of that control.
161. Defendants also intentionally deceived Broker A by churning through hundreds of
Broker A accounts, all in the names of others to perpetuate the scheme.
162. The Recruiters knew or were reckless in not knowing the existence of the free-riding
scheme.
163. The Recruiters knew or were reckless in not knowing that the Principals were trading
in Broker A accounts in the names of others and assisted the Principals in doing so.
164. The Recruiters each provided substantial assistance through soliciting Recruits to
open brokerage accounts for the Principals to trade in and they each allowed the Principals to trade
in brokerage accounts in their own names.
165. The Recruiters each provided substantial assistance by providing the Principals with
account login credentials so that the Principals could control the Broker A accounts.
166. The Recruiters knew or were reckless in not knowing that the Principals were trading
on Broker A’s instant deposit credit and that use of that credit was essential to the fraudulent
scheme.
167. The Recruiters knew or were reckless in not knowing that Hernandez traded in the
Broker A accounts with urgency, before Broker A restricted the Loser Accounts, that such

29
restrictions were inevitable given the nature of the scheme, that the accounts were being closed soon
after they were opened and that more accounts were needed to continue the scheme.
168. The Recruiters each opened or allowed at least Hernandez, to open, bank accounts
that each held jointly with Hernandez that were used to receive the illicit trading profits.  At the
Principals’ direction the Recruiters transferred profits from Winner Accounts in their names to the
joint bank accounts they held with Hernandez, allowing Hernandez to access the illicit proceeds for
his own use.
E. Broker A’s Losses/Defendants’ Ill-Gotten Gains
173. For the period between November of 2018 and January of 2022, Defendants’
scheme trading resulted in illicit profits of approximately $2.08 million.
174. The Principals received ill-gotten gains in the form of trading profits in the Winner
Accounts.
175. The Recruiters received ill-gotten gains in the form of payment per Broker A
account they provided that the Principals used and payments they received for transferring money
between bank accounts that the Principals controlled, at the Principals’ direction.
176. Specifically, the Principals earned profits of close to $5,000 per account (i.e., the
amount of the instant deposit credit) – a total of the profits made in each of the counter-trading
Winner Accounts – for the majority of Broker A Gold accounts used in the scheme.
177. They typically withdrew the profits within a few days of realizing them.  Hernandez,
in particular, transferred the trading profits to bank accounts in his name, and directed Ortiz and
Lloyd to do the same.
178. Hernandez then paid Ortiz and Lloyd a portion of the trading profits for their role in
this part of the scheme in addition to paying them for opening Loser Accounts.

30
179. Similarly, with regard to the Nominees, both Principals directed that they send
trading profits in Nominee accounts to themselves.  They then paid the Nominees for the use of
their accounts.
FIRST CLAIM FOR RELIEF
Violations of Exchange Act Section 10(b) and Rule 10b-5(a) and (c) Thereunder
(Against Defendants Hernandez and Flagg)

180. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1 through 179 of this Complaint.
181. By virtue of the foregoing, Defendants Hernandez and Flagg, directly or indirectly,
singly or in concert, in connection with the purchase or sale of securities and by the use of means or
instrumentalities of interstate commerce, or the mails, or the facilities of a national securities
exchange, knowingly or recklessly has (i) employed one or more devices, schemes, or artifices to
defraud, and/or (ii) engaged in one or more acts, practices, or courses of business which operated or
would operate as a fraud or deceit upon Broker A, by engaging in free-riding in Broker A’s accounts,
and conducting a matched trading strategy that essentially transferred the instant deposit credit
funds, fraudulently obtained from Broker A through the free-riding, to accounts in their own
control, which they then used for their own purposes.
182. By reason of the foregoing, Hernandez and Flagg, directly or indirectly, have violated
and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule
10b-5 (a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)].
SECOND CLAIM FOR RELIEF
Violations of Exchange Act Section 20(b)
and Rule 10b-5(a) and (c) Thereunder
(Against Hernandez and Flagg)

183. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1 through 179 of this Complaint.
184. Section 20(b) of the Exchange Act precludes any person, directly or indirectly, from

31
doing any act which would be unlawful under the Exchange Act for such person to do, through or
by means of any other person.
185. By virtue of the foregoing, Defendants Hernandez and Flagg, directly or indirectly,
singly or in concert, in connection with the purchase or sale of securities and by the use of means or
instrumentalities of interstate commerce, or the mails, or the facilities of a national securities
exchange, knowingly or recklessly has (i) employed one or more devices, schemes, or artifices to
defraud, and/or (ii) engaged in one or more acts, practices, or courses of business which operated or
would operate as a fraud or deceit upon other persons or entities, to wit Broker A, by using the
Recruiters and the Recruits, to open the Loser Accounts at Broker A, through which Hernandez and
Flagg engaged in free-riding, obtained Broker A’s instant deposit credit, and conducted the losing
trades essential to the matched trading scheme, and by using the Nominees to open Winner
Accounts through which Hernandez and Flagg conducted winning trades of the matched trading
scheme and through which Hernandez and Flagg funneled their illicit trading profits such that they
were able to access the funds. These acts, done through and by means of the Recruiters, Recruits
and Nominees, violated Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder.
186. By reason of the foregoing, Hernandez and Flagg, directly or indirectly, singly and in
concert, have violated and, unless enjoined, will again violate Exchange Act Section 20(b) [15 U.S.C.
§ 78t(b)].
THIRD CLAIM FOR RELIEF
Aiding and Abetting Violations of Exchange Act Section 10(b)
and Rule 10b-5(a) and (c) Thereunder
(Against Lloyd and Ortiz)

187. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1-7, 9-14, 16-51, 60-82, and 90-179 of this Complaint.
188. By virtue of the foregoing, Defendants Hernandez and Flagg violated Section 10(b)
of the Exchange Act and Rule 10b-5(a) and (c) thereunder.

32
189. Defendants Lloyd and Ortiz, by specifically recruiting Recruits to open Broker A
Loser Accounts for use in the scheme, directly or indirectly, singly or in concert, knowingly and/or
recklessly provided substantial assistance to these violations by Hernandez and Flagg.
190. By reason of the foregoing, pursuant to Exchange Act, Section 20(e) of the
Exchange Act [15 U.S.C. § 78t(e)], Defendants Lloyd and Ortiz directly and indirectly, singly or in
concert, have aided and abetted Defendants Hernandez’s and Flagg’s violations of Section 10(b) of
the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-
5(a) and (c)].
PRAYER FOR RELIEF

 WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Permanently enjoining and restraining each of the Defendants and their agents, servants,
employees and attorneys and all persons in active concert or participation with any of them from
violating, directly or indirectly, Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17
C.F.R. § 240.10b-5].
II.
 Imposing conduct-based injunctions prohibiting Defendants Hernandez and Flagg each
from: directly or indirectly, trading securities in any brokerage account he owns, controls, or has
access to that does not have settled cash equal to or greater than the amount of the securities
trade(s);
III.
Imposing conduct-based injunctions prohibiting each Defendant from: opening a brokerage
account without first providing to the relevant brokerage firm(s) a copy of the Commission’s filed

33
complaint in this matter and any judgment that the Commission may obtain against him in this
matter;
IV.
Ordering each of Defendants to disgorge their ill-gotten gains received as a result of the
conduct alleged in this Complaint, plus prejudgment interest thereon, pursuant to Exchange Act
Sections 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)];
V.
Ordering each of the Defendants to pay civil monetary penalties pursuant to Exchange Act
Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and
VI.
Granting any other and further relief this Court may deem just and proper.

Dated: New York, New York
October 31, 2023
___________________________________
Christopher J. Dunnigan
Cynthia A. Matthews
Joseph G. Sansone
Lindsay S. Moilanen
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street, Suite 20-100
New York, NY  10004-2616
(212) 336-0061 (Dunnigan)
[email protected]

Joseph G. Sansone 
Christopher J. Dunnigan 
Lindsay S. Moilanen 
Cynthia A. Matthews  
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
100 Pearl Street, Suite 20-100 
New York, New York 10004-2616 
(212) 336-0061 (Dunnigan)  
[email protected]  
 
UNITED STATES DISTRICT COURT 
EASTERN DISTRICT OF NEW YORK 

 
SECURITIES AND EXCHANGE 
COMMISSION, 
 
                                             Plaintiff, 
 
                        -against- 
 
EDUARDO HERNANDEZ, 
CHRISTOPHER FLAGG, 
DAQUAN LLOYD, and 
COREY ORTIZ,     
  
                                             Defendants.  
 
 

 
 
COMPLAINT 

   
23 Civ. 8110     

 
   

JURY TRIAL DEMANDED 
  

           
          

 
Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against 

Defendants Eduardo Hernandez (“Hernandez”), Christopher Flagg (“Flagg”), Daquan Lloyd 

(“Lloyd”), and Corey Ortiz (“Ortiz”) (collectively “Defendants”), alleges as follows: 

SUMMARY 

1. This matter involves a sophisticated version of a traditional “free-riding” scheme 

perpetuated by Defendants, all residents or former residents of and with ties to Copiague, New 

York, from approximately November 2018 through January 2022, that resulted in profits of at least 

$2 million at the expense of broker-dealer A (“Broker A”).  

Case 2:23-cv-08110   Document 1   Filed 10/31/23   Page 1 of 33 PageID #: 1



 2 

2. “Free-riding,” in this instance, describes the fraudulent practice used by Defendants 

to essentially steal an “instant deposit” credit extended by certain broker-dealers, by engaging in 

matched trading in illiquid securities without ever funding the trading account to which the credit 

was extended. 

3. Here, Defendants engaged in free-riding by taking advantage of the instant deposit 

credit feature of Broker A.  Defendants converted this instant deposit credit into cash for 

themselves by using a trading strategy that involved executing matched trades in illiquid options 

between unfunded loss-bearing “loser” accounts (“Loser Accounts”) at Broker A (and other broker-

dealers with similar credits) and profitable “winner” accounts (“Winner Accounts”) at other broker-

dealers.  Because Defendants controlled both sides of these matched trades, they were able to 

execute these trades at artificial prices and repeatedly generated trading profits in the Winner 

Accounts and trading losses in the Loser Accounts held at Broker A.    

4. Defendants’ matched trading strategy guaranteed their profits at Broker A’s expense.  

As described in more detail below, at Defendants’ direction, the Loser Accounts were never funded 

by the account holders, despite those account holders representing to Broker A they had sufficient 

funds in linked bank accounts.  Given the timing of the trading in the accounts, Defendants’ strategy 

generally allowed them to exhaust the instant deposit credit in the Loser Accounts by the time Broker 

A’s systems received notice of the insufficient funds in the bank accounts.   

5. When Broker A subsequently restricted trading in the Loser Accounts, Defendants (or 

their proxies) abandoned them, leaving Broker A with a loss equal to the trading losses generated in 

these Loser Accounts and debited from the instant credit the accounts had received.  Defendants (or 

their proxies) then simply opened new Loser Accounts in which they continued to conduct the free-

riding scheme.   

6. Hernandez was the mastermind of the fraudulent scheme.   

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7. Hernandez brought Flagg into the scheme early on and by at least July 2020, had 

taught Flagg how it worked, allowing Flagg to become another principal executing the scheme.  

Hernandez and Flagg (together, the “Principals”) each held Winner Accounts in his own name and 

controlled and used Winner Accounts in the names of others with whom they had ties and whom 

they had recruited to open accounts to trade in as well.  

8. The Principals recruited at least one individual (“Recruit 1”) to open a Loser 

Account at Broker A for use in the scheme.  Subsequently, at the Principals’ direction, Recruit 1 

recruited additional individuals to open Broker A accounts.  Recruit 1 engaged in these efforts 

through posting to social media outlets, such as Instagram, a screenshot of a profitable brokerage 

statement alongside offers for people to make quick, easy cash.   

9. Like Recruit 1, Lloyd and Ortiz’s role in the scheme was primarily in the recruitment 

of account holders.  Lloyd and Ortiz (together “the Recruiters”) targeted individuals who would 

agree to open new Broker A Loser Accounts or provide access to existing Broker A accounts for a 

nominal sum (the “Recruits”).  The Principals, with the Recruiters’ knowledge, used these Loser 

Accounts for engaging in the matched trading scheme. 

10. The Recruiters directed their own Recruits on how to open Broker A accounts 

and/or bank accounts, and to link Broker A accounts to bank accounts, purportedly to fund the 

trading.  However, the Principals, directly and indirectly through the Recruiters, warned at least 

some Recruits not to leave any money in the linked bank accounts, so that there would be no money 

to be transferred to the Broker A Loser Accounts to fund those accounts’ unprofitable trading.   

11. The Recruiters each provided their Recruits’ Broker A account login credentials to 

the Principals, so that the Principals could access and control the accounts and trade in the names of 

the opening account holders.  The Principals paid the Recruiters per account they provided, typically 

$300-500.   

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12. The Principals’ matched trading strategy worked as follows: in the Winner Accounts, 

the Principals offered illiquid put option contracts for sale at highly inflated, non-market prices.  At 

the same time, they bought those securities in the Broker A Loser Accounts at those inflated prices.  

Almost immediately thereafter, the Principals executed trades in the Winner Accounts to buy the 

options back from the Loser Accounts at the lower market price, closing out the transaction and 

locking in profits for the Winner Accounts and the losses in the Loser Accounts.  In this way, the 

Principals effectively transferred the instant deposit credit from the Broker A account to their 

Winner Accounts.   

13. The Principals used brokerage accounts in their own names and in the names of the 

Recruiters as Winner Accounts, as well as brokerage accounts in the names of unsophisticated 

friends and/or family (the “Nominees”).  The Principals told each Nominee that they (Hernandez 

or Flagg) would trade in the Nominee’s account.  The Principals then generally directed the transfer 

of the profits from the Winner Accounts to themselves, either directly or indirectly.  The Principals 

essentially paid the Nominees a sum that purportedly was to represent the Nominees’ portion of the 

trading profits.  

14. All told, over the four-year period, from approximately November 2018 to January 

2022 (the “Relevant Period”), Defendants used at least 600 Broker A Loser Accounts to conduct the 

fraudulent scheme, earning net profits of more than $2 million, equivalent to the amount of net loss 

Broker A suffered. 

VIOLATIONS 

15. By virtue of the foregoing conduct and as alleged further herein, Defendants 

Hernandez and Flagg directly violated Section 10(b) of the Securities Exchange Act of 1934 

(“Exchange Act”) [15 U.S.C. §§ 78j(b)] and Rules 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-

5(a) and (c)] and further violated Exchange Act Section 10(b) and Rules 10b-5(a) and (c) by acting 

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through or by means of another person in violation of Exchange Act Section 20(b) [15 U.S.C. 

§ 78t(b)]. 

16. Defendants Lloyd and Ortiz aided and abetted Defendants Hernandez’s and Flagg’s 

violations of Exchange Act Section 10(b) and Rule 10b-5(a) and (c), in violation of Exchange Act 

20(e) [15 U.S.C. § 78t(e)]. 

17. Unless Defendants are restrained and enjoined, they will engage in the acts, practices, 

transactions, and courses of business set forth in this Complaint or in acts, practices, transactions, 

and courses of business of similar type and object.  

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

18. The Commission brings this action pursuant to the authority conferred upon it by 

Exchange Act Sections 21(d) and (e) [15 U.S.C. §§ 78u(d), (e)].  

19. The Commission seeks a final judgment: (a) permanently enjoining Defendants from 

violating Exchange Act Section 10(b) and Rule 10b-5 thereunder; (b) imposing conduct-based 

injunctions prohibiting (i) each of Hernandez and Flagg from, directly or indirectly, trading securities 

in any brokerage account he owns, controls, or has access to that does not have settled cash equal to 

or greater than the amount of the securities trade(s); and (ii) each Defendant from opening a 

brokerage account without first providing to the relevant brokerage firm(s) a copy of the 

Commission’s filed complaint in this matter and any judgment that the Commission may obtain 

against him in this matter; (c) ordering Defendants to pay disgorgement and prejudgment interest 

pursuant to Exchange Act Sections 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)]; 

(d) ordering Defendants to pay civil money penalties pursuant to Exchange Act Section 21(d)(3) [15 

U.S.C. § 78u-1(d)]; and (e) ordering any other and further relief the Court may deem just and proper. 

 

 

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 JURISDICTION AND VENUE 

20. This Court has jurisdiction over this action pursuant to Exchange Act Sections 21(d), 

(e) and 27(a) [15 U.S.C. §§78u(d)-(e) and 78aa(a)].  

21. Among other things, Defendants, directly and indirectly, have made use of the 

means or instrumentalities of interstate commerce or of the mails or of the facilities or a national 

securities exchange in connection with the transactions, acts, practices, and courses of business 

alleged herein. 

22. Venue lies in this District under Exchange Act Section 27 [15 U.S.C. § 78aa].  

Certain of  the acts, practices, courses of  business and transactions constituting the violations alleged 

herein occurred within this District, including that Defendants were each residents of this District 

during all or part of the time that they conducted the fraudulent scheme, engaged in trades while 

located in this District, and that they withdrew from and/or deposited cash into branches of 

financial institutions located within this District in connection with the fraudulent scheme. 

DEFENDANTS 

23. Eduardo Hernandez, age 33, is a resident of Lindenhurst, New York.    

24. Christopher Flagg, age 28, is a resident of Copiague, New York.   

25. Daquan Lloyd, age 28, is a resident of Copiague, New York.    

26. Corey Ortiz, age 29, is a resident of Greensboro, North Carolina, and was formerly 

a resident of Copiague, New York at various points prior to the commencement of the Relevant 

Period, and was a resident of Babylon, New York, during part of the Relevant Period.  

FACTS 

A. Background  

27. As described in the Summary section above, Defendants engaged in a sophisticated 

and complex free-riding scheme that took systematic advantage of Broker A’s instant deposit credit 

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to fund their guaranteed-to-be-profitable matched trading, at Broker A’s expense during the 

Relevant Period.   

28. As described in more detail below, by free-riding on the instant deposit credit at 

Broker A to fund the trades matched with the trades in the Winner Accounts, Defendants were able 

to essentially transfer Broker A’s instant deposit credit to the Winner Accounts that Defendants 

controlled.   

29. Defendants were limited in the amount of profit they could obtain from any one 

Loser Account to the maximum instant deposit credit Broker A extended it, here, $5,000 as 

described below. 

30. Once the instant deposit credit was exhausted, the account was useless, because 

Defendants had no intention of funding the account and because Broker A, once it learned there 

were insufficient funds available to fund the trading, froze the account, ultimately closing it entirely.   

31. Accordingly, in order to perpetuate the scheme and the flow of profits, Defendants 

needed more Recruits to open new Loser Accounts in which to trade – they “need[ed] to find more 

‘Gold’,” meaning Loser Accounts at Broker A, in Hernandez’s and Flagg’s words.   

32. Ultimately, Defendants churned through over 600 Broker A Loser Accounts.  From 

approximately February 2020 through February 2021, at least 244 Broker A accounts were opened 

and traded in, in connection with Defendants’ fraudulent scheme.  During that time frame, only 14 

devices were used to access these 244 Broker A accounts for trading.  

B. Defendants Establish Winner and Loser Accounts to Facilitate Free-Riding Scheme 
 

1. Establishment of the Loser Accounts at Broker A 
 
a. Broker A’s Account Types and Instant Deposit Credit  

33. Broker A’s instant deposit credit feature gave account holders, upon initiating the 

transfer of sufficient funds from their linked bank account to their Broker A account, immediate 

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access to trading funds in the form of a credit.  Absent the instant deposit credit, these account 

holders ordinarily would have had to wait for the transfer of such funds to clear before they could 

trade.  The instant deposit credit was essentially a loan to the account holder to trade with, while 

waiting for the funding of the account to be completed. 

34.   During the Relevant Period, Broker A offered Broker A Gold (“Gold”), a 

subscription service that offered account holders with a portfolio value of up to $10,000, margin 

accounts and an instant deposit credit equal to the amount of the funds requested to be transferred 

into the account up to $5,000.   

35. The instant deposit credit became available to the account holder as soon as he or 

she: (1) linked a bank account in their name to their Broker A account; and (2) initiated an ACH 

funds transfer deposit (requesting a specific amount be transferred) from the linked bank account to 

their Broker A account. 

36. Broker A used a third-party platform to facilitate the linking of a customer’s bank 

account to their Broker A account.  The platform required the Broker A account holder to enter 

their bank account login credentials, thereby verifying the account holder’s control of the bank 

account.  It then confirmed matching account details, such as account name, account type and/or 

address, before linking the bank account to the Broker A account.   

37. Once the account holder’s bank account and Broker A account were linked, the 

account holder initiated the transfer of funds from the linked bank account to the Broker A account.  

The account holder’s initiation of the funds transfers triggered Broker A’s deposit of the instant 

credit into their Broker A account, allowing the account holder to trade while the transfer, a process 

that could ordinarily take up to five business days to complete, was pending. 

b. Broker A Account Opening and Account Holder Representations 

38. Broker A account holders made several representations in connection with opening a 

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Broker A account, pursuant to Broker A’s customer agreement (“Customer Agreement”).  As the 

account application process was online and conducted through mobile applications, prospective 

account holders agreed to abide by the conditions of the Customer Agreement by tapping or 

clicking the “Submit Application” button on their phones or other devices, which functioned as the 

electronic equivalent of the account holder’s signature. 

39. Among other things, by entering into the Customer Agreement, Broker A account 

holders, with respect to accounts Broker A opened on their behalf as owner of the account (“My 

Account(s)”), represented and warranted to Broker A that: 

40. “[T]here are sufficient funds in My External Account… [“an account I own at 

another institution”] … to cover the amount of the deposit to My Account.”   

41. “I am solely responsible for keeping My Account numbers and PINS … [ “PINS 

shall mean My username and password”] … confidential and will not share them with third parties.”   

42. “[T]he information contained in this … [Customer] Agreement, the account 

application, and any other document that I furnish to … [Broker A] … in connection with My 

Accounts is complete, true and correct,” … and “that knowingly giving false information for the 

purpose of inducing [Broker A] to extend credit is a federal crime.” 

43.  “I … agree not to allow any person to trade for My Account unless a trading 

authorization for that person has been received and approved by [Broker A].”  

c. Recruitment of Account Holders and Opening of the Loser Accounts, 
Generally 

44. Because the Principals’ scheme relied on taking advantage of the instant deposit 

credit at Broker A (and similar credits at other broker-dealers), opening numerous Loser Accounts at 

Broker A was a critical part of their scheme. 

45. All of the Defendants played a role in opening the Loser Accounts at Broker A. 

46. The Principals directly, or indirectly through the Recruiters, solicited the Recruits, 

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individuals who had little trading experience and did not ask many questions.   

47. The Recruiters frequently used social media outlets, like Instagram, to seek out new 

Recruits through promises of easy cash. 

48. The Principals both told at least Recruit 1 to tell Recruits that they could make 

money by opening a Broker A account for Defendants to trade in and told Recruits this directly on 

certain occasions.  The Principals, directly and through the Recruiters, paid the Recruits nominal 

sums to open these accounts.  Each Defendant determined individually what amount he would pay 

his own Recruits; amounts typically ranged from $25 to $300.   

49. In addition to directing Recruits to set up a Broker A account, Defendants directed 

Recruits to link their Broker A account to a bank account and assisted them in doing so when 

necessary.  Linking bank accounts to the Broker A accounts was essential to obtaining access to the 

instant deposit credit. 

50. Defendants knew, or were reckless in not knowing, the nature of the representations 

required of account holders to open accounts, having each held Broker A accounts, or accounts at 

other broker dealers that granted instant deposit credit, in their own names prior to, and/or during 

the Relevant Period.   

d. Recruitment of Account Holders and Opening of the Loser Accounts by the 
Principals and Recruit 1 

51. The Principals, directly or through the Recruiters, directed Recruits to provide their 

Broker A account login information.  The Principals then, with the knowledge of the Recruiters, 

used the Broker A accounts to engage in a matched trading scheme.    

52. For example, in the summer of 2020, the Principals directly recruited Recruit 1 by 

offering an opportunity for Recruit 1 to make “easy money” if he opened a Broker A account for 

them to trade in.   

53. Recruit 1 had little trading experience and did not have a Broker A trading account at 

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the time.  Recruit 1 agreed to open the account without asking any questions.   

54. The Principals then directed Recruit 1 to set up and link a bank account to that 

Broker A account.  They specifically warned Recruit 1 to make sure there were no funds in the 

linked bank account, so that Broker A could not receive money from that account.  The Principals 

directed Recruit 1 to provide them Recruit 1’s Broker A account login credentials; Recruit 1 did as 

directed and was paid approximately $500 to do so.  

55. Recruit 1 subsequently received notice from Broker A that Recruit 1’s Broker A 

account balance had dropped to roughly -$4,000 and that Broker A planned to terminate the 

account.  The Principals told Recruit 1 not to worry, that they had discovered a “loophole” in 

Broker A’s systems, that Broker A would eventually terminate the account and that it would all 

eventually “blow over.” 

56. Shortly thereafter, Recruit 1 began recruiting others to open Broker A accounts for 

the Principals to use to perpetrate the scheme.   

57. Recruit 1 solicited additional Recruits by posting to social media outlets (such as 

Instagram) a screenshot of a profitable brokerage statement that he received from a Principal, 

alongside offers for people to make quick, easy cash.  Dozens of people responded to the posts and 

agreed to give their existing accounts to, or to set up new Broker A accounts for, Defendants in 

exchange for a nominal sum. 

58. Recruit 1 further helped the Recruits set up online bank accounts - typically at banks 

or digital banking services that had no minimum balance requirements or monthly fees and required 

no credit check - to link to their Broker A accounts.   

59. As Recruit 1 had been directed to do by the Principals, Recruit 1 in turn warned 

Recruits not to leave any money in their linked bank accounts.   

60. Through this activity, the Principals directly and indirectly, acting through the 

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Recruits, made misrepresentations to Broker A with respect to the Recruits’ accounts, which they 

controlled. 

61. Specifically, the Principals misrepresented, directly and indirectly, that they had 

sufficient funds in their linked bank accounts to repay any instant deposit credit extended to them 

and that they were protecting the integrity of their accounts, in violation of the Broker A Customer 

Agreement.   

62. The Principals directly, and indirectly through Recruit 1, instructed Recruits not to 

fund their linked bank accounts so that Broker A could not obtain repayment of the instant deposit 

credit it had extended.   

63. The Principals further directly, and indirectly through the Recruiters, obtained from 

the Recruits control over the Recruits’ Broker A accounts, as unauthorized third parties in violation 

of the Customer Agreement.  

e. Recruitment of Account Holders and Opening of the Loser Accounts by the 
Recruiters 

64. The Recruiters each recruited dozens of people to open Broker A accounts and link 

the Broker A accounts to online bank accounts.  Each provided the Principals with the account 

login information for accounts in the names of the individuals that they had recruited for this 

purpose.  The Recruiters were each paid an amount that they agreed upon with the Principals for 

each account they provided to the Principals.  Each Recruiter determined what portion of the 

amount he received from the Principals, would be paid to the Recruit. 

65. For example, on February 20, 2021, Ortiz asked Hernandez if he needed any Broker 

A accounts, to which Hernandez replied “yes.” Ortiz then responded that he “got one coming up” 

and told Hernandez to “send that payment thru.” 

66. Again, on March 5, 2021, Ortiz told Hernandez that he had “work” for Hernandez, a 

code name for account login information, on information and belief, if Hernandez would “cashapp” 

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him.1  When Hernandez told Ortiz to send the “work,” Ortiz texted Hernandez an email address, a 

password and a code.  Hernandez agreed to pay Ortiz $500, which Hernandez sent via Cash App to 

Ortiz in bitcoin later that day.   

67. In addition, Hernandez told Lloyd that he traded in the Broker A accounts and that 

he would “run up” the accounts.  For example, on or about December 22, 2020, Hernandez sent a 

text message to Lloyd asking him if he had “work” ready for the next day.  When Lloyd indicated 

that he did, Hernandez directed Lloyd to make sure to have the accounts ready to go because he was 

“running work tomorrow and paying same day…”.  Hernandez told Lloyd that he planned to “be 

blowing up ya phone in the morning by trading hours 10 am.”   

68. Hernandez also told Lloyd that he (Hernandez) would only pay for a Broker A 

account that gave instant deposits, that he could get money from the Broker A account only if the 

instant deposit works and that the account was useless without the instant deposit.  For example, 

later on December 22, 2020, Hernandez told Lloyd “if the works good same day pay.”  Lloyd 

responded, “yes they verified bro I come correct”.  A few minutes later Hernandez told Lloyd that 

Broker A is “now blocking everything, smh [sic]…”  Lloyd responded “[Broker A] blocked?” and 

when Hernandez answered “yeah they are closing the account without warning” Lloyd texted, “well 

these two are good so…”.  Lloyd then texted, “so u not giving me the money upfront because of 

that” and Hernandez responds “Pretty much, I can’t pay out bands … [on information and belief, a 

specified amount of cash] … if the work doesn’t even give the instant deposits that’s my point.  If 

the instant deposit works then I can get the bread from them.  If it doesn’t it useless.” 

69. Ortiz knew that Hernandez was using Broker A’s instant deposit credit to effect the 

trading scheme: Ortiz knew that the Principals would only pay him for Broker A accounts that were 

 
1  Cash App is a peer-to-peer payment service that lets users quickly send and receive money 
from their mobile devices. 

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“good” – ones in which “the instant deposite [sic] went thru”. 

70. Ortiz also knew that Hernandez would “run up” the Broker A accounts as part of 

the scheme.  For example, on one occasion, on December 18, 2020, when Ortiz sought payment 

from Hernandez for providing him with account credentials for a Broker A account, he told 

Hernandez “It was good when I gave it to u.”  Hernandez responded to Ortiz: “the next morning it 

was restricted before I even had a chance to use it.  Log in, you’ll see its not negative.”  

71. Ortiz also acknowledged to Hernandez that he knew the existence of the Broker A 

“loophole.” 

72. The Recruiters’ role in opening new Broker A accounts provided substantial 

assistance to the Principals by, among other things, allowing them to take advantage of the instant 

deposit credit. 

73. The Recruiters knew or were reckless in not knowing the Principals were using the 

Loser Accounts as part of a trading scheme. 

f. Defendants’ Control and Use of the Loser Accounts 

74. Under Broker A’s protocols, when a potential account holder applied to open an 

account, they provided an email address and set up a password.  Once the account application was 

approved, the provided email became the username for the account and the account holder used the 

established username and password to access the account.  The username was unique to the account 

holder and could not be changed (nor could it be used as a username by any other account holder), 

but the password and contact email addresses, to which notifications about the account were sent, 

could be changed.   

75. By early 2019, Broker A also used a two-factor authentication system to authenticate 

or verify the account holder’s identity when an account holder attempted to log in from a new 

device, or when the phone number or email associated with an account was changed; in that regard, 

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Broker A would send a code to the account holder by text and/or email, which the account holder 

would need to enter on their device to access the account. 

76. As discussed above, the Principals obtained the account login information - 

usernames and passwords – for the Broker A accounts in order to access the accounts both directly, 

and from the Recruiters, who had obtained it from the Recruits.   

77. By giving the Principals account login credentials, the Recruiters provided the 

Principals with substantial assistance in executing their free riding scheme. 

78. The Recruiters knew, or were reckless in not knowing, the Principals intended to use 

the accounts for their free riding scheme. 

79. After obtaining control of the account, the Principals converted most of the Broker 

A accounts that they controlled to Broker A Gold accounts, allowing them to obtain up to generally 

$5,000 in credit on each account.  The Principals initiated directly, or indirectly through the Recruits, 

the funds transfer requests that triggered the instant deposit credit. 

80. The majority of Broker A accounts used in the scheme initiated wire transfers of 

funds from linked bank accounts approximating the $5,000 Broker A Gold limit. 

b. Establishment of the Winner Accounts at Other Broker-Dealers 

81. The Principals used online brokerage accounts in their own names as Winner 

Accounts for the scheme.  These accounts were generally held at broker-dealers other than Broker 

A, in order to conceal the Defendants’ role in the scheme and evade detection by Broker A. 

82. The Principals recruited Nominees, directly and indirectly through the Recruiters, to 

open accounts in their own names for the Principals to trade in.  Using Nominees further disguised 

Defendants’ role in the free-riding scheme. 

83. For example, Hernandez, through Recruit 1, solicited at least two Nominees and 

Flagg solicited at least one Nominee himself.   

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84. The Principals each told their respective Nominees, in sum and substance, that he 

was a successful trader who could make profits for the Nominee by trading in the Nominee’s 

account.  The Nominees, with the assistance of the Principals, set up brokerage accounts and ceded 

control of them, providing the account login credentials to the Principals directly, so that the 

Principals could trade in the respective accounts.   

85. Specifically, Hernandez told his Nominees that he would day trade in their accounts 

with his own money, which he wired into the brokerage accounts held in the Nominees’ names.   

86. Flagg told his Nominee that he would trade the Nominee’s money for the Nominee 

and used money that the Nominee deposited into the Nominee’s brokerage accounts to trade. 

87. The Principals’ Nominees had no trading experience and understood generally that 

the Principals were legitimate traders who traded in their accounts.   

88. Hernandez conducted some of his trading in the Nominees’ accounts in the presence 

of one or both of the Nominees, using each Nominee’s mobile phone to trade in the respective 

accounts.   

89. The Principals paid the Nominees what they told the Nominees was a percentage of 

the trading profits in exchange.   

90. The Recruiters also served as Nominees for the Principals.  The Recruiters set up, or 

allowed the Principals to use their personal information to set up, brokerage accounts in their names 

that they knew or were reckless in not knowing that the Principals would use as Winner Accounts in 

the scheme. 

91. For example, in a text message exchange between Lloyd and Hernandez, Lloyd sent 

Hernandez a screenshot of email correspondence Lloyd received from a broker-dealer.  The 

screenshot was of an email from the broker dealer approving Lloyd’s application to add option 

trading strategies to a brokerage account in his name.  Hernandez responded to Lloyd that the email 

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“…Seems legit.”  A second screenshot sent from Lloyd to Hernandez, shows Lloyd in the same 

broker-dealer’s mobile app, in a section of the app that allowed Lloyd to link his bank account to the 

brokerage account opened in his name (the “Lloyd Brokerage Account”) and initiate a funds transfer 

from his bank account to the Lloyd Brokerage Account.  The Lloyd Brokerage Account had been 

opened on April 29, 2021, and used as a Winner Account for the matched trading scheme, as 

described below, beginning on May 5, 2021, for approximately one month, trading against at least 15 

Broker A Loser Accounts.  As a result of the trading in the Lloyd Brokerage Account as a Winner 

Account against the Broker A Loser Accounts, Broker A suffered losses of approximately $37,905. 

92. By using these Nominee accounts, the Defendants were able to conceal the nature 

and extent of, as well as their roles in, the fraud.   

C. Defendants Engage in Matched Trading to Take Advantage of Instant Deposit  
Credit 

 
93. The Principals generally began to trade in the Broker A accounts opened by the 

Recruits within days after an account was opened and almost immediately after the instant deposit 

credit was available in the Loser Account.   

94. Once trading began, they traded continuously until they had essentially exhausted the 

instant deposit credit.  In most instances, in order to use the full instant deposit credit, the trading 

began and ended on the day it started, before Broker A learned there were insufficient funds in the 

linked bank account to fund the brokerage account. 

95. In order to maximize profits in their scheme, the Principals primarily traded in stock 

options.  A stock option, commonly referred to as an “option,” gives its purchaser-holder the right 

to buy or sell shares of an underlying stock at a specified price (the “strike price”) prior to the 

expiration date. Options are generally sold in “contracts,” which give the option holder the 

opportunity to buy or sell 100 shares of an underlying stock. The 100 shares underlying a stock 

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option contract can serve to provide leverage and the potential for greater profits than simply 

purchasing the stock. 

96. “Put” options are another form of options.  A “put” option gives the purchaser-

holder of the option the right, but not the obligation, to sell a specified amount of an underlying 

security at a specified price within a specific time-period.  Selling, or “writing,” “put” options for 

purchase by another market participant is one method of profiting when the writer believes that the 

underlying stock price will rise in value.  If the price of the underlying stock rises above the put 

option’s strike price, the option will be “out of the money” and cannot be exercised for a profit.  

The writer of the put option keeps the money paid for the put option and profits from the 

transaction. 

97. The Principals sold illiquid put options at highly inflated prices from the Winner 

Accounts they controlled to the Loser Accounts set up by the Recruits, in what appeared to be 

arms-length transactions.  However, the Principals controlled both sides of the trades. 

98. Often the underlying options were in the stock of companies that were the subject of 

merger or takeover offers, which caused the price of existing options to initially rise or fall but then 

typically trade within a narrow range after the announcement of the merger or takeover.  This 

allowed the Principals to select put options to trade that were out of the money by a large margin 

and for which there was limited liquidity.  This in turn allowed the Loser Accounts and the Winner 

Accounts to “match” trades at prices which no rational market participants would trade. 

99. After completing the initial sale of the out of the money put options from the 

Winner Accounts to the Loser Accounts, the Principals then bought the options back from the 

Loser Accounts to the Winner Accounts at a lower, non-inflated price.  This allowed the Winner 

Accounts to reap the profits of the trade, while the Loser Accounts took the loss.   

 

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a. Mechanics of the Matched Trading, Generally 

100. In connection with Defendants’ scheme, a typical matched trading transaction 

worked as follows: a Winner Account would post a limit order on an exchange, offering to “sell to 

open,” or short, several contracts in a particular series of put options.   

101. A limit order allows the trader to set the minimum price at which they will sell (or 

the maximum price for which they will buy) the options contracts.  

102. The selected put options were thinly-traded and were usually deep out of the money.  

Deep out of the money options generally trade at very low prices because they have minimal chance 

of ever becoming in the money or obtaining any meaningful value.   

103. Further, as described above, most of the securities’ issuers had been previously 

announced as merger or takeover targets and thus those stocks would typically trade in a very 

narrow range between the time the deal was announced, and the deal closed.  Options with these 

characteristics usually sold for around $0.05-$0.10 per contract.  

104. The Principals typically used the Winner Accounts to set the limit order at a price far 

above normal market prices but within the allowed price range of the exchange-imposed bid-ask 

spread,2 for options that generally sold in the $0.05-$0.10 range.   

105. At the inflated price, the option would not typically sell, particularly given the low 

volume of the selected option series, and the minimal chance that the underlying stock’s price would 

fall enough to allow the put options to become valuable. 

106. At the same time as the Winner Account’s “sell to open” limit order was listed by the 

exchange; the Principals used the Loser Account to place an order to buy (“buy to open”) the exact 

 
2  Exchanges typically require as much as a $5.00 spread (i.e., $0.10 - $5.10) to be maintained by 
designated market makers who made markets in those option contracts. 

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same put option series at or slightly higher than the limit price of the Winner Account’s sell to open 

order.   

107. Because no market participants were selling at lower prices, and no legitimate market 

participants were interested in buying for such a high price, the exchange would automatically match 

the trades placed by the Winner and Loser Accounts in a transaction, filling the sell order from the 

Winner Account with the buy order from the Loser Account, giving the Winner Account a credit 

for the trade.   

108. The Winner Account would then typically cover the established short option 

position at or near the more favorable, lower, market price, to generate a quick profit.   

109. To close out the open options position, the Loser Account would place an offer to 

sell those options contracts (“sell to close”) at or near market price, while at the same time, the 

Winner Account would post a bid to buy (“buy to close”) the same number of contracts, from the 

same options series, also at or near market price.   

110. The exchange would again automatically match the trades placed by the Winner and 

Loser Accounts, closing out the positions for both accounts.   

111. These round-trip trades locked in the profits of the trade for the Winner Accounts 

and the losses, in the same amount, for the Loser Accounts. 

112. The Principals coordinated the trading in the Winner and Loser Accounts, 

deliberately structuring the pricing and quantity of the trades in order to exhaust the up to $5,000 

instant deposit credit they received in the Broker A accounts.   

113. To further obfuscate their scheme, the Principals traded the same options series 

between multiple accounts and multiple options series between single accounts.  In other words, the 

Principals matched trades between a single or several issuers in one Winner Account and multiple 

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Loser Accounts, or between multiple Winner Accounts and one Loser Account, until the Loser 

Account had exhausted the credit.  

b. Examples of the Matched Trading Activity by the Principals 

1. October 7, 2020 Hernandez SINA Trading 

114. On October 7, 2020, Hernandez, trading in a brokerage account in his name held at 

a broker-dealer other than Broker A (“Winner 1”), offered for sale certain SINA Corp. (“SINA”) 

put options contracts with a strike price of $30.   

115. At the time, SINA’s stock was trading at around $42.70.   The previous week, on 

September 28, 2020, New Wave Holdings Ltd. had announced its proposal to acquire SINA for 

$43.30 per share.  The put options did not have any trades in the market other than those that were 

part of the scheme. 

116. Since the put option strike price was significantly below the underlying stock price, 

the options had little value – they were out of the money and illiquid. 

117. Nonetheless, Hernandez put in his offer to sell the put options from the Winner 1 

account at $4.50, significantly higher than the value of those options. 

118. A Broker A Gold account (“Loser 1”) opened by a Recruit that had initiated a $5,000 

funds transfer from its linked bank account and was funded by an instant deposit credit in the same 

amount that day, bought the put options at the offered price. 

119. Minutes after these trades, Hernandez, trading in the Winner 1 account, bought the 

same put options back from the Loser 1 account at $0.25 per contract, earning profits of $850 for 

the Winner 1 account.  The Loser 1 account suffered losses in the same amount.   

120. Accounts in which Hernandez conducted the matched trading strategy accounted for 

all trading volume in this SINA put option series that day.  

 

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2. October 16, 2020 Hernandez SINA Trading 

121. On October 16, 2020, Hernandez, trading again in the Winner 1 account, offered for 

sale SINA put options contracts of the same put option series at $3.90.  That day, those put options 

did not have any trades in the market other than those that were part of the scheme. 

122. The options were deep out of the money.  The price of the options order was again, 

far above the value of the options. 

123. That same day, a second Broker A Gold account (“Loser 2”) opened by a Recruit, 

had initiated a funds transfer from its linked bank account for $5,000 and had received an instant 

deposit credit in the same amount.  

124. The Loser 2 account bought the put options at the offered price.  Minutes later, 

Hernandez, trading in the Winner 1 account, bought the options back from the Loser 2 account at 

$0.35 per contract, for a profit of $1,065, causing a loss to the Loser 2 account in the same amount.   

125. Accounts in which Hernandez conducted the matched trading strategy, again, 

accounted for all trading volume in this SINA put option series that day. 

3. October 22, 2020 Hernandez VAR Trading 

126.  On October 22, 2020, Hernandez, trading in the Winner 1 account, offered for sale 

1 Varian Medical Systems, Inc. (“VAR”) put option contract with a strike price of $60, while VAR’s 

stock was trading around $171.73 – again an out of the money option.  VAR had earlier received a 

proposal to be acquired by Siemens Healthineers AG for $177.50 per share on August 2, 2020.   

127. In the Winner 1 account, Hernandez placed a trade to offer to sell the put options at 

$4.50.  That day, those put options did not have any trades in the market other than those that were 

part of the scheme. 

128. The options were deep out of the money.  The price of the options order was again, 

far above the value of the options. 

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129. Also on that day, Hernandez had opened, or directed to be opened and linked to a 

bank account, a Broker A Gold account in the name of a third party that he controlled (“Loser 3”), 

and had initiated a funds transfer for, and received an instant deposit credit of, $5,000 in the Loser 3 

account.   

130. Hernandez bought the put options in the Loser 3 account at the inflated price he had 

offered them from the Winner 1 account.   

131. Then Hernandez, trading in the Winner 1 account, bought them back from the Loser 

3 account that he was also trading, in minutes later at $0.25.  As a result of the matched trades 

Hernandez conducted between two accounts that he controlled, the Winner 1 account gained a 

profit of $375, while the Loser 3 account suffered losses in that same amount.  

132. Accounts in which Hernandez conducted the matched trading strategy accounted for 

nearly all trading volume in this VAR put option series on that day. 

133. Each of the Loser 1, 2 and 3 accounts began trading moments after having initiated 

funds transfers, and receiving Broker A instant deposit credits, of $5,000, and each exhausted its 

respective credit – conducting the entirety of the account’s trading – that same date. 

134.  The funds transfers for all three Loser Accounts were reversed within days, leaving 

each account with a balance of at least -$4,990; thereafter, the accounts were abandoned, leading 

Broker A to close them and absorb the losses. 

4. November 20, 2020 Hernandez Nominee VAR Trading 

135. In addition to the examples above where Hernandez executed trades in Winner 

Accounts in his name, he further executed the matched trading strategy in Winner Accounts held in 

the names of his Nominees.   

136. For example, on or around October 22, 2020, at Hernandez’s direction, Nominee 1 

opened a brokerage account for Hernandez to trade in (“Hernandez Nominee Account”).   

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137. A Broker A Gold account (“Loser 4”) was opened by a Recruit on November 15, 

2020.  Five days later, on November 20, 2020, the Loser 4 account initiated funds transfers totaling 

$5,000 from its linked bank account and consequently received instant deposit credit of $5,000.   

138. That same date, Hernandez asked for and obtained the account login information for 

the Hernandez Nominee Account from Nominee 1 by text.  Shortly thereafter Hernandez began 

trading in the Hernandez Nominee Account and offered for sale certain VAR put option contracts, 

with a strike price of $65.  At the time VAR’s stock was trading around $173.   

139. On that date, in the Hernandez Nominee Account, Hernandez also offered for sale 

certain SINA put option contracts, at strike prices of $17.50 and $25.00.  SINA’s stock was trading 

at around $43.   

140. Both the VAR and SINA put options were deep out of the money and thus had little 

to no value.  Nevertheless, Hernandez selected highly inflated offer prices of $4.50 for the VAR put 

options and between $4.20 and $4.90 for the SINA put options.  That day, those put options did not 

have any trades in the market other than those that were part of the scheme. 

141. The Loser 4 account bought the VAR and the SINA put options at the offered 

prices.  The trades in the Loser 4 account were placed from the same IP address (i.e., the same 

location) as was used for the Hernandez Nominee Account. Minutes later, Hernandez, trading in the 

Hernandez Nominee Account, bought the VAR put options back from the Loser 4 account at 

$0.25.   

142. At or about the same time, Hernandez, again trading in the Hernandez Nominee 

Account, bought the SINA put options back from the Loser 4 account at prices ranging from $0.05 

to $0.10.   

143. As a result of the trading on November 20, 2020, Hernandez’s total combined 

profits were $4,930 in the Hernandez Nominee Account.  The trading in the Loser 4 account on 

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November 20, 2020, exhausted the $5,000 instant deposit credit Broker A had extended and resulted 

in losses to the account of $4,930.   

5. June 14, 2021 Flagg TARO Trading 

144. Flagg executed the trading scheme through accounts in his name as well.  For 

example, on June 14, 2021, Flagg, trading in a brokerage account in his name held at a broker-dealer 

other than Broker A (“Winner 2”), offered for sale certain Taro Pharmaceutical Industries Ltd 

(“TARO”) put options contracts with strike prices of $40 and $45.  At the time, TARO stock was 

trading at around $75.77.   

145. These put options were considered deep out of the money and thus had little to no 

value.  Nevertheless, Flagg put in his offer to sell the put options from the Winner 2 account, 

selecting highly inflated offer prices for the put options at between $1.00 and $2.50, many times the 

values of those options.  That day, those put options did not have any trades in the market other 

than those that were part of the scheme.  

146. The same day, a Broker A Gold account (“Loser 5”) was opened by a Recruit and 

linked to a bank account.  Shortly thereafter that day, the Loser 5 account initiated funds transfers 

totaling $1,500 and consequently received an instant deposit credit in the same amount.  The Loser 5 

account bought the TARO put options at the offered price.   

147. Minutes after these trades, the Winner 2 account bought the same put options back 

from the Loser 5 account at $0.10 per contract, earning profits of $1,270, resulting in the same 

amount of loss to the Loser 5 account.   

148. Two days later, on June 16, 2021, the funds transfers initiated by the Loser 5 account 

were reversed due to insufficient funds in the linked bank account, resulting in a balance of -$1,470 

in the Loser 5 account.  Thereafter the Loser 5 account was abandoned, leading Broker A to close it 

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and absorb the loss.  Accounts in which Flagg conducted the matched trading strategy accounted for 

nearly all trading volume in these particular TARO put option series. 

149. Flagg repeated this trading pattern in the Winner 2 account with other issuers’ put 

options contracts and/or other Broker A accounts, generating additional profits in the account.  

6. September 21, 2021 Flagg Nominee TARO Trading 

150. Similar to Hernandez, Flagg executed the matched trading strategy in his Nominee 

Winner Accounts in addition to accounts held in his name.   

151. On or around September 21, 2021, at the direction of Flagg, Nominee 2 opened a 

brokerage account for Flagg to trade in (the “Flagg Nominee Account”).  Flagg began selling deep 

out of the money put options in the account the next day.  

152. On September 27, 2021, Flagg, trading in the Flagg Nominee Account offered for 

sale certain TARO deep out of the money put option contracts, with a strike price of $45, while 

TARO’s stock was trading around $63.  These put options had little to no value.  Nevertheless, 

Flagg selected offer prices for the put options at between $1.60 and $3.00, many times the values of 

those options.  That day, those put options did not have any trades in the market other than those 

that were part of the scheme. 

153. Earlier that day, a Broker A Gold account (“Loser 6”) held by a Recruit that had 

been opened and linked to a bank account previously, initiated funds transfer requests that caused 

the Loser 6 account to be funded by an instant deposit credit of $5,000.  Using that credit, the Loser 

6 account bought the put options contracts at the price that Flagg offered.   

154. Minutes later, Flagg, trading in the Flagg Nominee Account, bought the TARO put 

options back from the Loser 6 account at $0.10, earning profits of $1,125 in the Flagg Nominee 

Account, resulting in that same amount of loss in the Loser 6 account.  Later, on September 27, 

2021, however, funds transfers that had been initiated to the Loser 6 account in the amount of 

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approximately $2,300 were reversed due to insufficient funds in the linked bank account.  Accounts 

from this scheme accounted for nearly all trading volume in TARO put options that day.   

155. The Loser 6 account continued this trading pattern, using the Broker A instant 

deposit credit to trade these and other issuers’ deep out of the money put contracts at inflated prices 

with other Winner Accounts and generating additional losses, resulting ultimately in a balance of 

approximately -$2,685.  Thereafter, the Loser 6 account was abandoned, leading Broker A to close it 

and absorb the loss. 

156. Flagg repeated this trading pattern in the Flagg Nominee Account with other Broker 

A accounts and other issuers’ deep out of the money put contracts, generating additional profits in 

the Flagg Nominee Account.  On September 29, 2021, Nominee 2, again at Flagg’s direction, wired 

$6,700 from the Flagg Nominee Account to a bank account in Nominee 2’s name and later that 

same day, at Flagg’s direction, sent $1,700 from that bank account, using her debit card, to Flagg via 

Cash App. 

D. Defendants Deceive Broker A and Act with the Requisite Scienter 

158. Defendants deceived Broker A by essentially using the Broker A Loser Accounts and 

the instant deposit credit extended them to pay the Winner Accounts the profits of the matched 

trading, at Broker A’s expense.   

159. Defendants intentionally deceived Broker A by soliciting and directing the Recruits 

to open Broker A accounts in their own names, in order to conceal Defendants’ identity and 

involvement in the accounts’ activity. 

160. Defendants also intentionally deceived Broker A directly, and indirectly through the 

Recruits, by making representations to Broker A in connection with opening the accounts that 

Defendants knew to be false: specifically, that (1) the Recruits would have sufficient funds in their 

linked bank accounts to repay the instant deposit credit Broker A had extended, when Defendants 

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directed the Recruits to make sure there were no funds in the linked bank accounts to repay that 

credit; (2) the Recruits would obtain Broker A’s approval and authorization before allowing others 

to trade in their accounts, when Defendants directed the opening of Broker A accounts with the 

intent of trading in and controlling the accounts, under the guise of trading as the respective 

Recruits; and (3) the Recruits would keep their usernames and associated emails confidential and not 

share them with third parties, when Defendants directed the Recruits to provide their usernames to 

them and changed the associated emails to those of Defendants’ own choosing so as to maintain 

control, while concealing the extent of that control.   

161. Defendants also intentionally deceived Broker A by churning through hundreds of 

Broker A accounts, all in the names of others to perpetuate the scheme. 

162. The Recruiters knew or were reckless in not knowing the existence of the free-riding 

scheme.   

163. The Recruiters knew or were reckless in not knowing that the Principals were trading 

in Broker A accounts in the names of others and assisted the Principals in doing so.  

164. The Recruiters each provided substantial assistance through soliciting Recruits to 

open brokerage accounts for the Principals to trade in and they each allowed the Principals to trade 

in brokerage accounts in their own names.   

165. The Recruiters each provided substantial assistance by providing the Principals with 

account login credentials so that the Principals could control the Broker A accounts.   

166. The Recruiters knew or were reckless in not knowing that the Principals were trading 

on Broker A’s instant deposit credit and that use of that credit was essential to the fraudulent 

scheme.   

167. The Recruiters knew or were reckless in not knowing that Hernandez traded in the 

Broker A accounts with urgency, before Broker A restricted the Loser Accounts, that such 

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restrictions were inevitable given the nature of the scheme, that the accounts were being closed soon 

after they were opened and that more accounts were needed to continue the scheme. 

168. The Recruiters each opened or allowed at least Hernandez, to open, bank accounts 

that each held jointly with Hernandez that were used to receive the illicit trading profits.  At the 

Principals’ direction the Recruiters transferred profits from Winner Accounts in their names to the 

joint bank accounts they held with Hernandez, allowing Hernandez to access the illicit proceeds for 

his own use.  

E. Broker A’s Losses/Defendants’ Ill-Gotten Gains 

173. For the period between November of 2018 and January of 2022, Defendants’ 

scheme trading resulted in illicit profits of approximately $2.08 million.  

174. The Principals received ill-gotten gains in the form of trading profits in the Winner 

Accounts.  

175. The Recruiters received ill-gotten gains in the form of payment per Broker A 

account they provided that the Principals used and payments they received for transferring money 

between bank accounts that the Principals controlled, at the Principals’ direction.   

176. Specifically, the Principals earned profits of close to $5,000 per account (i.e., the 

amount of the instant deposit credit) – a total of the profits made in each of the counter-trading 

Winner Accounts – for the majority of Broker A Gold accounts used in the scheme.   

177. They typically withdrew the profits within a few days of realizing them.  Hernandez, 

in particular, transferred the trading profits to bank accounts in his name, and directed Ortiz and 

Lloyd to do the same.   

178. Hernandez then paid Ortiz and Lloyd a portion of the trading profits for their role in 

this part of the scheme in addition to paying them for opening Loser Accounts.   

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179. Similarly, with regard to the Nominees, both Principals directed that they send 

trading profits in Nominee accounts to themselves.  They then paid the Nominees for the use of 

their accounts. 

FIRST CLAIM FOR RELIEF 
Violations of Exchange Act Section 10(b) and Rule 10b-5(a) and (c) Thereunder 

(Against Defendants Hernandez and Flagg) 
 

180. The Commission re-alleges and incorporates by reference here the allegations in 

paragraphs 1 through 179 of this Complaint. 

181. By virtue of the foregoing, Defendants Hernandez and Flagg, directly or indirectly, 

singly or in concert, in connection with the purchase or sale of securities and by the use of means or 

instrumentalities of interstate commerce, or the mails, or the facilities of a national securities 

exchange, knowingly or recklessly has (i) employed one or more devices, schemes, or artifices to 

defraud, and/or (ii) engaged in one or more acts, practices, or courses of business which operated or 

would operate as a fraud or deceit upon Broker A, by engaging in free-riding in Broker A’s accounts, 

and conducting a matched trading strategy that essentially transferred the instant deposit credit 

funds, fraudulently obtained from Broker A through the free-riding, to accounts in their own 

control, which they then used for their own purposes. 

182. By reason of the foregoing, Hernandez and Flagg, directly or indirectly, have violated 

and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 

10b-5 (a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) and (c)]. 

SECOND CLAIM FOR RELIEF 
Violations of Exchange Act Section 20(b) 

and Rule 10b-5(a) and (c) Thereunder 
(Against Hernandez and Flagg) 

 
183. The Commission re-alleges and incorporates by reference here the allegations in 

paragraphs 1 through 179 of this Complaint. 

184. Section 20(b) of the Exchange Act precludes any person, directly or indirectly, from 

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doing any act which would be unlawful under the Exchange Act for such person to do, through or 

by means of any other person. 

185. By virtue of the foregoing, Defendants Hernandez and Flagg, directly or indirectly, 

singly or in concert, in connection with the purchase or sale of securities and by the use of means or 

instrumentalities of interstate commerce, or the mails, or the facilities of a national securities 

exchange, knowingly or recklessly has (i) employed one or more devices, schemes, or artifices to 

defraud, and/or (ii) engaged in one or more acts, practices, or courses of business which operated or 

would operate as a fraud or deceit upon other persons or entities, to wit Broker A, by using the 

Recruiters and the Recruits, to open the Loser Accounts at Broker A, through which Hernandez and 

Flagg engaged in free-riding, obtained Broker A’s instant deposit credit, and conducted the losing 

trades essential to the matched trading scheme, and by using the Nominees to open Winner 

Accounts through which Hernandez and Flagg conducted winning trades of the matched trading 

scheme and through which Hernandez and Flagg funneled their illicit trading profits such that they 

were able to access the funds. These acts, done through and by means of the Recruiters, Recruits 

and Nominees, violated Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder. 

186. By reason of the foregoing, Hernandez and Flagg, directly or indirectly, singly and in 

concert, have violated and, unless enjoined, will again violate Exchange Act Section 20(b) [15 U.S.C. 

§ 78t(b)]. 

THIRD CLAIM FOR RELIEF 
Aiding and Abetting Violations of Exchange Act Section 10(b) 

and Rule 10b-5(a) and (c) Thereunder 
(Against Lloyd and Ortiz) 

 
187. The Commission re-alleges and incorporates by reference here the allegations in 

paragraphs 1-7, 9-14, 16-51, 60-82, and 90-179 of this Complaint. 

188. By virtue of the foregoing, Defendants Hernandez and Flagg violated Section 10(b) 

of the Exchange Act and Rule 10b-5(a) and (c) thereunder. 

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189. Defendants Lloyd and Ortiz, by specifically recruiting Recruits to open Broker A 

Loser Accounts for use in the scheme, directly or indirectly, singly or in concert, knowingly and/or 

recklessly provided substantial assistance to these violations by Hernandez and Flagg. 

190. By reason of the foregoing, pursuant to Exchange Act, Section 20(e) of the 

Exchange Act [15 U.S.C. § 78t(e)], Defendants Lloyd and Ortiz directly and indirectly, singly or in 

concert, have aided and abetted Defendants Hernandez’s and Flagg’s violations of Section 10(b) of 

the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-

5(a) and (c)]. 

PRAYER FOR RELIEF 
 

 WHEREFORE, the Commission respectfully requests that the Court enter a Final 

Judgment: 

I. 

Permanently enjoining and restraining each of the Defendants and their agents, servants, 

employees and attorneys and all persons in active concert or participation with any of them from 

violating, directly or indirectly, Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 

C.F.R. § 240.10b-5].  

II. 

 Imposing conduct-based injunctions prohibiting Defendants Hernandez and Flagg each 

from: directly or indirectly, trading securities in any brokerage account he owns, controls, or has 

access to that does not have settled cash equal to or greater than the amount of the securities 

trade(s);  

III. 

Imposing conduct-based injunctions prohibiting each Defendant from: opening a brokerage 

account without first providing to the relevant brokerage firm(s) a copy of the Commission’s filed 

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complaint in this matter and any judgment that the Commission may obtain against him in this 

matter; 

IV. 

Ordering each of Defendants to disgorge their ill-gotten gains received as a result of the 

conduct alleged in this Complaint, plus prejudgment interest thereon, pursuant to Exchange Act 

Sections 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(5) and 78u(d)(7)]; 

V. 

Ordering each of the Defendants to pay civil monetary penalties pursuant to Exchange Act 

Section 21(d)(3) [15 U.S.C. § 78u(d)(3)]; and 

VI. 

Granting any other and further relief this Court may deem just and proper. 

 
Dated: New York, New York 

October 31, 2023   

___________________________________   

Christopher J. Dunnigan 
Cynthia A. Matthews 
Joseph G. Sansone 
Lindsay S. Moilanen 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
100 Pearl Street, Suite 20-100 
New York, NY  10004-2616 
(212) 336-0061 (Dunnigan) 
[email protected] 

  

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