SEC v. Joseph P. Willner, No. 1:17-cv-06305, Eastern District of New York (Jan. 1, 2017) — Complaint

Joseph
G.
Sansone
SECURITIES
AND
EXCHANGE
COMMISSION
200
Vesey
Street,
Suite
400
New
York,
New
York
10281-1022
Telephone
(Forni):
(617)
573-8827
Email
(Forni):
[email protected]
UNITED
STATES
DISTRICT
COURT
EASTERN
DISTRICT
OF
NEW
YORK
SECURITIES
AND
EXCHANGE
COMMISSION,
Plaintiff,
v
.
JOSEPH
P.
WILLNER,
Defendant.
COMPLAINT
17
-CV-
(~
JURY
TRIAL
DEMANDED
Plaintiff,
Securities
and
Exchange
Commission
(the
"Commission"),
alleges
as
follows:
SUMMARY
1.
Beginning
no
later
than
September
2014,
and
continuing
until
at
least
August
2016,
Joseph
P.
Willner
("Willner"
or
the
"Defendant")
engaged
in
an
illegal
brokerage
account
takeover
and
unauthorized
trading
scheme
in
concert
with
at
least
one
other
person
(referred
to
herein
as
"Individual
A").
In
furtherance
of
the
scheme,
Individual
Aand/or
other
persons
working
with
Individual
A,
directly
or
indirectly,
secretly
and
without
authorization,
accessed
at
least
110
brokerage
accounts
of
unwitting
accountholders
(the
"Victims"
or
"Victims'
Accounts"),
and
used
the
Victims'
Accounts
to
place
securities
trades
that
artificially
affected
the
stock
price
of
various
publicly
traded
companies.
At
or
about
the
same
time,
Willner
used
his
brokerage
accounts
(collectively,
the
"Aggressor
Accounts")
to
trade
the
same
securities,
generating
profits
by
taking
advantage
of
the
artificial
stock
prices
that
resulted
from
the
unauthorized
trades
placed
in
the
Victims'
Accounts.

2.
In
furtherance
of
the
scheme,
Winner
and
Individual
A
often
traded
before
or
after
regular
market
hours,
which
are
from
9:30
a.m.
ET
(the
"open")
to
4:00
p.m.
ET
(the
"close").
Publicly
traded
stocks
generally
trade
less
frequently
in
pre
-market
and
after-hours
trading
and
may
be
more
susceptible
to
price
swings
due
to
diminished
supply
and
demand.
Consequently,
Winner
and
Individual
A
often
targeted
stocks
in
the
pre
-market
or
after
-market
hours
to
engage
in
coordinated
trading
at
artificially
high
or
low
prices.
3.
Winner
generated
at
least
$700,000
in
illicit
profits
through
his
participation
in
the
scheme
by
buying
or
selling
stock
in
Aggressor
Accounts
in
his
name
at
artificially
low
or
high
prices
generated
by
the
unauthorized
trading
of
stock
in
Victims'
Accounts.
4.
As
a
result
of
the
conduct
alleged
herein,
Winner
violated,
and
unless
restrained
and
enjoined
will
continue
to
violate,
Section
17(a)
of
the
Securities
Act
of
1933
("Securities
Act")
[15
U.S.C.
§
77q(a)],
and
Sections
9(a)(2)
[15
U.S.C.
§
78j(i)(a)(2)]
and
10(b)
of
the
Securities
Exchange
Act
of
1934
("Exchange
Act")
[15
U.S.C.
§
78j(b)]
and
Rule
lOb-5
thereunder
[17
C.F.R.
§
340.1Ob-5].
5.
The
Commission
seeks
a
permanent
injunction
against
Winner,
enjoining
him
from
engaging
in
the
transactions,
acts,
practices,
and
courses
of
business
alleged
in
this
Complaint,
disgorgement
of
all
ill-gotten
gains
from
the
unlawful
conduct
set
forth
in
this
Complaint,
together
with
prejudgment
interest,
civil
penalties
pursuant
to
Section
20(d)
of
the
Securities
Act
[15
U.S.C.
§
77t(d)]
and
Section
21(d)(3)
of
the
Exchange
Act
[15
U.S.C.
78u(d)(3)],
and
such
other
relief
as
the
Court
may
deem
appropriate.
JURISDICTION
AND
VENUE
6.
This
Court
has
jurisdiction
over
this
action
pursuant
to
Section
22(a)
of
the
Securities
Act
[15
U.S.C.
§
77v(a)]
and
Sections
21(d),
21(e),
and
27
of
the
Exchange
Act
[15
2

U.S.C.
§§
78u(d),
78u(e),
and
78aa].
7.
Venue
lies
in
this
Court
pursuant
to
Section
22(a)
of
the
Securities
Act
[15
U.S.C.
§
77v(a)]
and
Section
27
of
the
Exchange
Act
[15
U.S.C.
§
78aa].
Certain
of
the
acts,
practices,
transactions
and
courses
of
business
alleged
in
this
Complaint
occurred
within
the
Eastern
District
of
New
York,
and
were
effected,
directly
or
indirectly,
by
making
use
of
means
or
instrumentalities
of
transportation
or
communication
in
interstate
commerce,
or
the
mails.
For
example,
at
least
one
of
the
Victims
whose
brokerage
account
was
taken
over
as
part
of
this
scheme
resides
in
the
Eastern
District
of
New
York.
DEFENDANT
8.
Joseph
P.
Willner,
("Willner"),
age
42,
is
a
resident
of
Ambler,
Pennsylvania.
At
all
times
material
to
this
Complaint,
Willner
was
aday-trader
and
also
purported
to
be
self-
employed
in
the
property
management
industry.
Willner
traded
through
accounts
held
in
his
name
at
Brokerage
Firm
1
from
at
least
January
2014
to
December
2014;
Brokerage
Firm
2
from
December
2014
to
April
2015;
and
Brokerage
Firm
3
from
Apri12015
to
at
least
July
2016.
FACTS
9.
From
at
least
September
2014
through
at
least
August
2016
(the
"Relevant
Period"),
Willner
engaged
in
a
fraudulent
trading
and
market
manipulation
scheme
with
Individual
A
that
involved
at
least
110
Victims'
Accounts
and
many
different
securities.
10.
Willner
began
communicating
with
Individual
A
in
furtherance
of
the
fraudulent
trading
and
market
manipulation
scheme
through
online
direct
messaging
applications
no
later
than
September
2014.
For
example,
on
or
about
September
22,
2014,
Willner
asked
Individual
A
if
he
wanted
to
"talk
in
private."
Days
later,
Willner
sent
Individual
A
the
following
message:
"you
trading
today
or
just
waiting
for
after
hours.
I
have
to
go
somewhere
but
if
you
want
to

meet
on
chat
to
do
some
trades
I
can
be
come
on
...."
11.
Willner
and
Individual
A
continued
to
communicate
via
messaging
applications
in
furtherance
of
the
fraudulent
trading
and
market
manipulation
scheme
through
at
least
August
2016.
For
example,
on
or
about
Apri129,
2016,
Willner
wrote
the
following
message
to
Individual
A:
"let
me
know
...
if
you
want
to
make
2k
instant
afterhours."
Also,
on
or
about
May
3,
2016,
Willner
told
Individual
A:
"I
have
good
stock
for
afterhours."
12.
To
generate
"gains"
or
profits,
Willner,
operating
his
own
brokerage
accounts
as
Aggressor
Accounts,
and
Individual
A,
operating
the
Victims'
Accounts,
coordinated
stock
trading
on
numerous
occasions
during
the
Relevant
Period.
First,
Individual
A
accessed
without
authorization,
directly
or
indirectly,
a
number
of
brokerage
accounts
held
by
Victims.
Individual
A
then
caused
the
Victims'
Accounts
to
enter
unauthorized
trade
orders
at
artificially
high
or
low
prices.
Often,
these
trade
orders
executed,
directly
or
indirectly,
against
trade
orders
Willner
placed
in
his
Aggressor
Accounts
at
the
same
artificially
high
or
low
prices.
13.
Throughout
the
Relevant
Period,
Winner
disguised
his
real
identity
when
he
communicated
with
Individual
A
by
using
a
pseudonym.
However,
Winner
accessed
the
direct
messaging
applications
using
his
pseudonym
through
the
same
Internet
protocol
("IP")
addresses
associated
with
Winner's
primary
residence.
14.
In
exchange
for
perpetrating
these
manipulations,
Individual
A
required
that
Winner
pay
him
half
of
the
trading
profits
that
Winner
generated
from
the
scheme.
On
or
about
February
11,
2015,
for
example,
Winner
messaged
Individual
A
that
he
hoped
they
could
do
some
trading
together,
to
which
Individual
A
replied:
"Legal
trading
too
hard."
Winner
responded
that
he
would
be
a
good
trading
partner,
adding
"I
just
want
us
to
have
enough
so
we
can
trade
real
...just
use
pre
and
after
hours
to
keep
us
in
the
game."
To
which
Individual
A

replied:
"yeah u
remember deal ... i can do that
[expletive] half half profit."
15.
Willner agreed to
the profit sharing
arrangement with Individual A. In order to
mask his
payments to
Individual A, Willner transferred
proceeds of profitable trades to a
digital
currency
company that
converts United States dollars to
the cryptocurrency known as bitcoin,
and
then
transmitted the
bitcoins to Individual A.
16.
For example,
on or about April 10, 2015,
Winner asked Individual A to engage
in
after-hours
trading.
During after-hours
trading, Winner entered an order to sell shorts537 shares
of
First Community
Corporation ("FCCO") with a limit price
of
$14.88
per
share.
The closing
price of
F~CO
earlier in the day was just
$11.64 per share. At or about the same time as
Winner
placed a
sell order,
Individual A caused, without
authorization, the account of Victim No. 1 to
enter a
buy order
for
537
shares
with a limit price of $14.88. Winner's short sale
order executed,
directly or
indirectly, against
Victim No. 1's buy order. Minutes
later, Winner covered his short
position at a
profit by
purchasing 537 shares of FCCO at
$9.40 per share. Once again, Winner's
purchase
order executed,
directly or
indirectly, against an unauthorized trade that Individual A
caused
Victim No. 1's
brokerage
account to place. Winner made
approximately
$2,900 by
selling,
directly or
indirectly, FCCO to Victim No. 1's
account in
the
after-hours market.
17.
Just a
few days
later, Winner communicated with Individual A about
splitting the
$2,900 in illicit
profits
according to their prior
arrangement to
share profits.
On or about April
13,
2015,
Winner sent a
direct messaging
communication to Individual A that said: "I know you
wanted to make
sure I btc
[bitcoin] you but already
impatient for 1450?"
1A short
sale is the
act of
selling
a security
that one does not own. If the price of the security
declines
following
the short sale,
a trader can profit from a short sale by purchasing the same
security
at a lower
price. The
act
of
purchasing a security that one has short sold is known as
"covering" the
short.

18.
On
or
about
July
15,
2015,
and
between
approximately
6:25
p.m.
and
6:34
p.m.
ET
(after
the
close),
Individual
A
secretly
accessed
Victim
No.
2's
brokerage
account
and
placed,
directly
or
indirectly,
orders
to
buy
shares
of
the
publicly
traded
stock
Highway
Holdings
Limited
("HIHO")
at
prices
between
$4.36
and
$4.49
per
share.
These
prices
were
significantly
higher
than
the
price
of
$3.99
per
share
at
which
HIHO
had
traded
at
the
close
of
regular
market
hours
earlier
that
day.
At
or
about
the
same
time
that
Individual
A
caused
Victim
No.
2's
account
to
place
the
buy
orders,
Willner
placed
orders
to
sell
short
shares
of
HIHO
at
similar
high
prices
ranging
from
$4.36
to
$4.45
per
share.
Willner's
sell
orders
executed,
directly
or
indirectly,
against
buy
orders
that
Individual
A
caused
Victim
No.
2's
account
to
place,
resulting
in
Winner
selling
short
5,813
shares
of
HIHO
at
prices
between
$4.36
and
$4.46.
Within
minutes,
Winner
began
covering
his
short
position
by
placing
orders
to
buy
shares
of
HIHO
at
prices
between
$3.78
and
$3.83
per
share.
Around
the
same
time,
Individual
A
caused
Victim
No.
2's
account
to
place
orders
to
sell
HIHO
shares
at
prices
ranging
from
$3.78
to
$3.83
per
share.
Winner's
buy
orders
executed,
directly
or
indirectly,
against
some
of
the
sell
orders
placed
in
Victim
No.
2's
account,
resulting
in
Winner's
covering
4,500
shares
of
his
short
position
in
HIHO.
19.
Winner
covered
the
rest
of
his
short
position
by
buying
another
300
shares
of
HIHO
at
$4.25
per
share
in
after-hours
trading,
and
an
additional
1,013
shares
of
HIHO
during
pre
-market
trading
the
next
morning
at
$4.02
per
share.
In
total,
Winner
short
sold
and
covered
5,813
shares
of
HIHO
and
secured
a
profit
of
approximately
$3,000
in
less
than
a
day.
20.
Similarly,
on
or
about
May
12,
2016,
at
or
about
8:12
a.m.
ET,
Winner
entered
an
order
to
sell
short
9,000
shares
of
Auris
Medical
Holding
AG
("EARS")
at
$3.89
per
share
through
an
Aggressor
Account
held
in
his
name.
The
price
of
EARS
at
the
close
of
regular
D

market
trading
on
the
previous
day
was
just
$3.53
per
share.
21.
At
or
about
the
same
time,
Individual
A,
directly
or
indirectly,
secretly
accessed
and
caused
Victim
No.
3's
brokerage
account
to
enter
orders
to
buy
approximately
49,000
shares
of
EARS
at
artificially
high
prices
ranging
from
$3.89
to
$3.99
per
share.
9,000
of
the
EARS
shares
that
Victim
No.
3
purchased
at
these
inflated
prices
were
obtained,
directly
or
indirectly,
from
executions
against
sell
orders
that
Willner
had
placed
in
the
Aggressor
Account
in
his
name.
22.
Just
minutes
later,
Willner
and
Individual
A
used
Victim
No.
3's
brokerage
account
to
generate
illicit
profits.
Specifically,
at
approximately
8:12
a.m.
ET,
Willner
placed
an
order
to
cover
his
short
by
purchasing
9,000
shares
of
EARS
at
$3.20
per
share,
and
Individual
A
caused
Victim
No.
3's
account
to
place
an
order
to
se119,000
shares
of
EARS
at
the
same
price.
Both
orders
were
priced
at
33
cents
below
the
closing
price
on
the
prior
trading
day.
Willner's
buy
order
executed,
directly
or
indirectly,
against
Victim
No.
3's
sell
order.
In
total,
Willner
realized
profits
of
$6,201
from
the
EARS
trading
described
above.
23.
Winner
and
Individual
A
also
coordinated
trades
during
regular
market
hours
and
manipulated
stock
prices
therein
by,
among
other
things,
creating
the
appearance
of
trading
interest
in
such
publicly
traded
stock,
or
raising
or
depressing
the
price
of
such
publicly
traded
stock,
for
the
purpose
of
inducing
the
purchase
or
sale
of
the
publicly
traded
stock
by
others.
24.
For
example,
on
or
about
May
17,
2016,
Individual
A
caused
Victim
No.
4's
brokerage
account
to
purchase
shares
of
Lawson
Products,
Inc.
("LAWS")
during
regular
market
hours
at
prices
that
increased
during
the
course
of
the
purchases
and
raised
the
price
of
LAWS
in
a
manner
that
did
not
reflect
true
market
supply
and
demand.
After
Individual
A
caused
Victim
No.
4's
account
to
purchase
LAWS
stock,
Winner
short
sold
LAWS
at
the
artificially
higher
7

prices
generated
by
Individual
A's
unauthorized
trading.
Then,
Individual
A
caused
Victim
No.
4's
account
to
sell
LAWS
stock
until
the
stock
price
decreased.
At
or
around
that
time,
Willner
began
purchasing
LAWS
stock
at
the
lower
prices
to
cover
his
open
short
position.
Willner
made
a
profit
from
the
difference
between
the
manipulated
price
at
which
he
sold
LAWS
short
and
the
price
at
which
he
subsequently
purchased
LAWS
shares.
25.
Specifically,
at
approximately
1:33
p.m.
ET
to
1:34
p.m.
ET,
Individual
A
caused
Victim
No.
4's
account
to
purchase
LAWS
shares
at
prices
that
increased
from
as
low
as
$18.99
per
share
to
a
high
of
$19.49
per
share.
At
approximately
1:35
pm
ET,
Willner
sold
short
7,400
shares
of
LAWS
at
prices
between
$19.41
and
$19.50
per
share
in
his
own
account.
Within
minutes,
Individual
A
caused
Victim
No.
4's
account
to
sell
LAWS
stock,
which
caused
the
price
to
decline
to
as
low
as
approximately
$18.71
per
share.
Then,
about
one
minute
later,
Willner
began
covering
his
short
position
by
purchasing
shares
of
LAWS
in
his
own
account
at
prices
ranging
from
$18.72
to
$19.15
per
share.
By
purchasing
7,400
shares
of
LAWS
at
a
lower
price
per
share
than
the
artificially
inflated
price
at
which
he
had
shorted
the
stock,
Willner
profited
by
approximately
$3,233.
26.
Willner's
and
Individual
A's
trading
in
LAWS
on
May
17
was,
among
other
things,
designed
to
manipulate
the
market
for
LAWS
by
artificially
raising
(and
then
depressing)
the
price
of
LAWS
shares,
and
by
generating
more
trading
activity
in
LAWS
than
usual,
for
the
purpose
of
inducing
purchases
and
sales
by
others.
The
trading
volume
in
LAWS
on
May
17
increased
dramatically
from
an
average
daily
trading
volume
that
month
of
approximately
14,000
shares
per
day
to
more
than
170,000
shares
on
this
day,
and
the
vast
majority
of
the
170,000
shares
traded
between
approximately
1:00
p.m.
and
2:00
p.m.
ET.
During
this
period
of
time,
investors
other
than
Willner
and
Individual
A
who
purchased
LAWS
shares
paid
artificially

inflated
prices
for
those
securities.
27.
During
the
Relevant
Period,
Willner
coordinated
trades
at
artificially
high
(or
low)
prices
with
Individual
A
on
a
number
of
other
occasions
as
well.
28.
During
the
Relevant
Period,
Willner
knew,
or
was
reckless
in
not
knowing,
that
Individual
A
accessed,
without
authorization,
the
brokerage
accounts
of
at
least
110
Victims,
including
Victim
Nos.
1
—
4
referenced
herein.
29.
As
a
result
of
the
conduct
described
herein,
Willner
defrauded
a
number
of
Victims
through
the
fraudulent
trading
and
market
manipulation
scheme.
Willner
generated
at
least
$700,000
in
profits
from
the
scheme.
FIRST
CLAIM
FOR
RELIEF
FRAUD
IN
THE
OFFER
OR
SALE
OF
SECURITIES
(Violations
of
Section
17(a)(1)
and
(3)
of
the
Securities
Act)
30.
Paragraphs
1
through
29
above
are
re
-alleged
and
incorporated
by
reference
as
if
fully
set
forth
herein.
31.
By
reason
of
the
conduct
described
above,
Willner,
in
connection
with
the
offer
or
sale
of
securities,
by
the
use
of
the
means
or
instrumentalities
of
interstate
commerce
or
of
the
mails,
directly
or
indirectly,
acting
with
the
requisite
degree
of
knowledge
or
state
of
mind
(i)
employed
devices,
schemes,
or
artifices
to
defraud;
and
(ii)
engaged
in
transactions,
practices,
or
courses
of
business
which
operated
or
would
operate
as
a
fraud
or
deceit
upon
any
persons,
including
purchasers
or
sellers
of
the
securities.
32.
By
reason
of
the
conduct
described
above,
Willner
violated
Securities
Act
Section
17(a)(1)
and
(3)
[15
U.S.C.
§
77q(a)(1)
and
(3)].
D

SECOND
CLAIM
FOR
RELIEF
FRAUD
IN
CONNECTION
WITH
THE
PURCHASE
OR
SALE
OF
SECURITIES
(Violations
of
Section
10(b)
of
the
Exchange
Act
and
Rules
lOb-5(a)
and
(c)
thereunder)
33.
Paragraphs
1
through
29
above
are
re
-alleged
and
incorporated
by
reference
as
if
fully
set
forth
herein.
34.
By
reason
of
the
conduct
described
above,
Willner,
directly
or
indirectly,
in
connection
with
the
purchase
or
sale
of
securities,
by
the
use
of
the
means
or
instrumentalities
of
interstate
commerce
or
of
the
mails,
or
of
any
facility
of
any
national
securities
exchange,
intentionally,
knowingly
or
recklessly,
(i)
employed
devices,
schemes,
or
artifices
to
defraud;
and
(ii)
engaged
in
acts,
practices,
or
courses
of
business
which
operated
or
would
operate
as
a
fraud
or
deceit
upon
any
persons,
including
purchasers
or
sellers
of
the
securities.
35.
By
reason
of
the
conduct
described
above,
Willner
violated
Exchange
Act
Section
10(b)
[15
U.S.C.
§
78j(b)]
and
Rules
lOb-5(a)
and
(c)
[17
C.F.R.
§
240.1Ob-5(a)
and
(c)]
thereunder.
THIRD
CLAIM
FOR
RELIEF
MARKET
MANIPULATION
(Violations
of
Section
9(a)(2)
of
the
Exchange
Act)
36.
Paragraphs
1
through
29
above
are
re
-alleged
and
incorporated
by
reference
as
if
fully
set
forth
herein.
37.
By
reason
of
the
foregoing,
Willner
directly
or
indirectly,
acting
intentionally,
knowingly
or
recklessly,
in
connection
with
the
purchase
or
sale
of
securities,
by
use
of
the
means
or
instrumentalities
of
interstate
commerce
or
the
facilities
of
a
national
securities
exchange
or
the
mail,
effected,
alone
or
with
one
or
more
persons,
a
series
of
transactions
in
securities
registered
on
a
national
exchange,
creating
actual
or
apparent
active
trading
in
such
securities,
or
raising
or
depressing
the
price
of
such
securities,
for
the
purpose
of
inducing
the
10

purchase
or
sale
of
such
securities
by
others.
38.
By
engaging
in
the
conduct
described
above,
Willner
violated
Section
9(a)(2)
of
the
Exchange
Act
[15
U.S.C.
§
78i(a)(2)].
PRAYER
FOR
RELIEF
WHEREFORE,
the
Commission
respectfully
requests
that
this
Court:
A.
Permanently
restrain
and
enjoin
Willner,
his
officers,
agents,
servants,
employees
and
attorneys,
and
those
persons
in
active
concert
or
participation
with
him
who
receive
actual
notice
of
the
injunction
by
personal
service
or
otherwise,
and
each
of
them,
from
violating
Section
17(a)
of
the
Securities
Act
[15
U.S.C.
§
77q(a)],
Sections
9(a)(2)
[15
U.S.C.
78i(a)(2)]
and
10(b)
of
the
Exchange
Act
[15
U.S.C.
78j(b)],
and
Rule
lOb-5
thereunder
[17
C.F.R.
240.
l
Ob-5].
B.
Order
Willner
to
disgorge,
with
prejudgment
interest,
all
ill-gotten
gains
obtained
by
reason
of
the
unlawful
conduct
alleged
in
this
Complaint;
C.
Order
Willner
to
pay
civil
monetary
penalties
pursuant
to
Section
20(d)
of
the
Securities
Act
[15
U.S.C.
§
77t(d)]
and
Section
21(d)(3)
of
the
Exchange
Act
[15
U.S.C.
§
78u(d)(3)];
and
D.
Grant
such
other
and
further
relief
as
this
Court
may
deem
appropriate.
11

JURY
DEMAND
The
Commission
demands
a
jury
in
this
matter
for
all
claims
so
triable.
DATED:
October
30,
2017
Respectfully
submitted,
BY~
~~
~_
Joseph
G.
Sansone
SECURITIES
AND
EXCHANGE
COMMISSION
200
Vesey
Street,
Suite
400
New
York,
New
York
10281-1022
Telephone
(Forni):
(617)
573-8827
Email
(Forni):
[email protected]
Of
Counsel
:
Eric
A.
Forni*
Susan
Cooke
Anderson*
Marcus
D.
Fruchter*
Andrew
R.
McFall*
*Not
admitted
in
EDNY
(to
be
admitted
pro
hac
vice)
12

Joseph G. Sansone
SECURITIES AND EXCHANGE COMMISSION
200 Vesey Street, Suite 400
New York, New York 10281-1022
Telephone (Forni): (617) 573-8827
Email (Forni): [email protected]

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,
v.

JOSEPH P. WILLNER,
Defendant.

COMPLAINT

17-CV- (~

JURY TRIAL DEMANDED

Plaintiff, Securities and Exchange Commission (the "Commission"), alleges as follows:

SUMMARY

1. Beginning no later than September 2014, and continuing until at least August

2016, Joseph P. Willner ("Willner" or the "Defendant") engaged in an illegal brokerage account

takeover and unauthorized trading scheme in concert with at least one other person (referred to

herein as "Individual A"). In furtherance of the scheme, Individual Aand/or other persons

working with Individual A, directly or indirectly, secretly and without authorization, accessed at

least 110 brokerage accounts of unwitting accountholders (the "Victims" or "Victims'

Accounts"), and used the Victims' Accounts to place securities trades that artificially affected the

stock price of various publicly traded companies. At or about the same time, Willner used his

brokerage accounts (collectively, the "Aggressor Accounts") to trade the same securities,

generating profits by taking advantage of the artificial stock prices that resulted from the

unauthorized trades placed in the Victims' Accounts.

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 1 of 12 PageID #: 1 



2. In furtherance of the scheme, Winner and Individual A often traded before or

after regular market hours, which are from 9:30 a.m. ET (the "open") to 4:00 p.m. ET (the

"close"). Publicly traded stocks generally trade less frequently in pre-market and after-hours

trading and may be more susceptible to price swings due to diminished supply and demand.

Consequently, Winner and Individual A often targeted stocks in the pre-market or after-market

hours to engage in coordinated trading at artificially high or low prices.

3. Winner generated at least $700,000 in illicit profits through his participation in

the scheme by buying or selling stock in Aggressor Accounts in his name at artificially low or

high prices generated by the unauthorized trading of stock in Victims' Accounts.

4. As a result of the conduct alleged herein, Winner violated, and unless restrained

and enjoined will continue to violate, Section 17(a) of the Securities Act of 1933 ("Securities

Act") [15 U.S.C. § 77q(a)], and Sections 9(a)(2) [15 U.S.C. § 78j(i)(a)(2)] and 10(b) of the

Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Rule lOb-5

thereunder [17 C.F.R. § 340.1Ob-5].

5. The Commission seeks a permanent injunction against Winner, enjoining him

from engaging in the transactions, acts, practices, and courses of business alleged in this

Complaint, disgorgement of all ill-gotten gains from the unlawful conduct set forth in this

Complaint, together with prejudgment interest, civil penalties pursuant to Section 20(d) of the

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C.

78u(d)(3)], and such other relief as the Court may deem appropriate.

JURISDICTION AND VENUE

6. This Court has jurisdiction over this action pursuant to Section 22(a) of the

Securities Act [15 U.S.C. § 77v(a)] and Sections 21(d), 21(e), and 27 of the Exchange Act [15

2

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 2 of 12 PageID #: 2 



U.S.C. §§ 78u(d), 78u(e), and 78aa].

7. Venue lies in this Court pursuant to Section 22(a) of the Securities Act [15 U.S.C.

§ 77v(a)] and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Certain of the acts, practices,

transactions and courses of business alleged in this Complaint occurred within the Eastern

District of New York, and were effected, directly or indirectly, by making use of means or

instrumentalities of transportation or communication in interstate commerce, or the mails. For

example, at least one of the Victims whose brokerage account was taken over as part of this

scheme resides in the Eastern District of New York.

DEFENDANT

8. Joseph P. Willner, ("Willner"), age 42, is a resident of Ambler, Pennsylvania. At

all times material to this Complaint, Willner was aday-trader and also purported to be self-

employed in the property management industry. Willner traded through accounts held in his

name at Brokerage Firm 1 from at least January 2014 to December 2014; Brokerage Firm 2 from

December 2014 to April 2015; and Brokerage Firm 3 from Apri12015 to at least July 2016.

FACTS

9. From at least September 2014 through at least August 2016 (the "Relevant

Period"), Willner engaged in a fraudulent trading and market manipulation scheme with

Individual A that involved at least 110 Victims' Accounts and many different securities.

10. Willner began communicating with Individual A in furtherance of the fraudulent

trading and market manipulation scheme through online direct messaging applications no later

than September 2014. For example, on or about September 22, 2014, Willner asked Individual

A if he wanted to "talk in private." Days later, Willner sent Individual A the following message:

"you trading today or just waiting for after hours. I have to go somewhere but if you want to

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 3 of 12 PageID #: 3 



meet on chat to do some trades I can be come on ...."

11. Willner and Individual A continued to communicate via messaging applications in

furtherance of the fraudulent trading and market manipulation scheme through at least August

2016. For example, on or about Apri129, 2016, Willner wrote the following message to

Individual A: "let me know ... if you want to make 2k instant afterhours." Also, on or about

May 3, 2016, Willner told Individual A: "I have good stock for afterhours."

12. To generate "gains" or profits, Willner, operating his own brokerage accounts as

Aggressor Accounts, and Individual A, operating the Victims' Accounts, coordinated stock

trading on numerous occasions during the Relevant Period. First, Individual A accessed without

authorization, directly or indirectly, a number of brokerage accounts held by Victims. Individual

A then caused the Victims' Accounts to enter unauthorized trade orders at artificially high or low

prices. Often, these trade orders executed, directly or indirectly, against trade orders Willner

placed in his Aggressor Accounts at the same artificially high or low prices.

13. Throughout the Relevant Period, Winner disguised his real identity when he

communicated with Individual A by using a pseudonym. However, Winner accessed the direct

messaging applications using his pseudonym through the same Internet protocol ("IP") addresses

associated with Winner's primary residence.

14. In exchange for perpetrating these manipulations, Individual A required that

Winner pay him half of the trading profits that Winner generated from the scheme. On or about

February 11, 2015, for example, Winner messaged Individual A that he hoped they could do

some trading together, to which Individual A replied: "Legal trading too hard." Winner

responded that he would be a good trading partner, adding "I just want us to have enough so we

can trade real ...just use pre and after hours to keep us in the game." To which Individual A

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 4 of 12 PageID #: 4 



 

 

replied: "yeah u remember deal ... i can do that [expletive] half half profit."

15. Willner agreed to the profit sharing arrangement with Individual A. In order to

mask his payments to Individual A, Willner transferred proceeds of profitable trades to a digital

currency company that converts United States dollars to the cryptocurrency known as bitcoin,

and then transmitted the bitcoins to Individual A.

16. For example, on or about April 10, 2015, Winner asked Individual A to engage in

after-hours trading. During after-hours trading, Winner entered an order to sell shorts 537 shares

of First Community Corporation ("FCCO") with a limit price of $14.88 per share. The closing

price of F~CO earlier in the day was just $11.64 per share. At or about the same time as Winner

placed a sell order, Individual A caused, without authorization, the account of Victim No. 1 to

enter a buy order for 537 shares with a limit price of $14.88. Winner's short sale order executed,

directly or indirectly, against Victim No. 1's buy order. Minutes later, Winner covered his short

position at a profit by purchasing 537 shares of FCCO at $9.40 per share. Once again, Winner's

purchase order executed, directly or indirectly, against an unauthorized trade that Individual A

caused Victim No. 1's brokerage account to place. Winner made approximately $2,900 by

selling, directly or indirectly, FCCO to Victim No. 1's account in the after-hours market.

17. Just a few days later, Winner communicated with Individual A about splitting the

$2,900 in illicit profits according to their prior arrangement to share profits. On or about April

13, 2015, Winner sent a direct messaging communication to Individual A that said: "I know you

wanted to make sure I btc [bitcoin] you but already impatient for 1450?"

1 A short sale is the act of selling a security that one does not own. If the price of the security
declines following the short sale, a trader can profit from a short sale by purchasing the same
security at a lower price. The act of purchasing a security that one has short sold is known as
"covering" the short.

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 5 of 12 PageID #: 5 



18. On or about July 15, 2015, and between approximately 6:25 p.m. and 6:34 p.m.

ET (after the close), Individual A secretly accessed Victim No. 2's brokerage account and

placed, directly or indirectly, orders to buy shares of the publicly traded stock Highway Holdings

Limited ("HIHO") at prices between $4.36 and $4.49 per share. These prices were significantly

higher than the price of $3.99 per share at which HIHO had traded at the close of regular market

hours earlier that day. At or about the same time that Individual A caused Victim No. 2's

account to place the buy orders, Willner placed orders to sell short shares of HIHO at similar

high prices ranging from $4.36 to $4.45 per share. Willner's sell orders executed, directly or

indirectly, against buy orders that Individual A caused Victim No. 2's account to place, resulting

in Winner selling short 5,813 shares of HIHO at prices between $4.36 and $4.46. Within

minutes, Winner began covering his short position by placing orders to buy shares of HIHO at

prices between $3.78 and $3.83 per share. Around the same time, Individual A caused Victim

No. 2's account to place orders to sell HIHO shares at prices ranging from $3.78 to $3.83 per

share. Winner's buy orders executed, directly or indirectly, against some of the sell orders

placed in Victim No. 2's account, resulting in Winner's covering 4,500 shares of his short

position in HIHO.

19. Winner covered the rest of his short position by buying another 300 shares of

HIHO at $4.25 per share in after-hours trading, and an additional 1,013 shares of HIHO during

pre-market trading the next morning at $4.02 per share. In total, Winner short sold and covered

5,813 shares of HIHO and secured a profit of approximately $3,000 in less than a day.

20. Similarly, on or about May 12, 2016, at or about 8:12 a.m. ET, Winner entered an

order to sell short 9,000 shares of Auris Medical Holding AG ("EARS") at $3.89 per share

through an Aggressor Account held in his name. The price of EARS at the close of regular

D

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 6 of 12 PageID #: 6 



market trading on the previous day was just $3.53 per share.

21. At or about the same time, Individual A, directly or indirectly, secretly accessed

and caused Victim No. 3's brokerage account to enter orders to buy approximately 49,000 shares

of EARS at artificially high prices ranging from $3.89 to $3.99 per share. 9,000 of the EARS

shares that Victim No. 3 purchased at these inflated prices were obtained, directly or indirectly,

from executions against sell orders that Willner had placed in the Aggressor Account in his

name.

22. Just minutes later, Willner and Individual A used Victim No. 3's brokerage

account to generate illicit profits. Specifically, at approximately 8:12 a.m. ET, Willner placed an

order to cover his short by purchasing 9,000 shares of EARS at $3.20 per share, and Individual A

caused Victim No. 3's account to place an order to se119,000 shares of EARS at the same price.

Both orders were priced at 33 cents below the closing price on the prior trading day. Willner's

buy order executed, directly or indirectly, against Victim No. 3's sell order. In total, Willner

realized profits of $6,201 from the EARS trading described above.

23. Winner and Individual A also coordinated trades during regular market hours and

manipulated stock prices therein by, among other things, creating the appearance of trading

interest in such publicly traded stock, or raising or depressing the price of such publicly traded

stock, for the purpose of inducing the purchase or sale of the publicly traded stock by others.

24. For example, on or about May 17, 2016, Individual A caused Victim No. 4's

brokerage account to purchase shares of Lawson Products, Inc. ("LAWS") during regular market

hours at prices that increased during the course of the purchases and raised the price of LAWS in

a manner that did not reflect true market supply and demand. After Individual A caused Victim

No. 4's account to purchase LAWS stock, Winner short sold LAWS at the artificially higher

7

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 7 of 12 PageID #: 7 



prices generated by Individual A's unauthorized trading. Then, Individual A caused Victim No.

4's account to sell LAWS stock until the stock price decreased. At or around that time, Willner

began purchasing LAWS stock at the lower prices to cover his open short position. Willner

made a profit from the difference between the manipulated price at which he sold LAWS short

and the price at which he subsequently purchased LAWS shares.

25. Specifically, at approximately 1:33 p.m. ET to 1:34 p.m. ET, Individual A caused

Victim No. 4's account to purchase LAWS shares at prices that increased from as low as $18.99

per share to a high of $19.49 per share. At approximately 1:35 pm ET, Willner sold short 7,400

shares of LAWS at prices between $19.41 and $19.50 per share in his own account. Within

minutes, Individual A caused Victim No. 4's account to sell LAWS stock, which caused the

price to decline to as low as approximately $18.71 per share. Then, about one minute later,

Willner began covering his short position by purchasing shares of LAWS in his own account at

prices ranging from $18.72 to $19.15 per share. By purchasing 7,400 shares of LAWS at a lower

price per share than the artificially inflated price at which he had shorted the stock, Willner

profited by approximately $3,233.

26. Willner's and Individual A's trading in LAWS on May 17 was, among other

things, designed to manipulate the market for LAWS by artificially raising (and then depressing)

the price of LAWS shares, and by generating more trading activity in LAWS than usual, for the

purpose of inducing purchases and sales by others. The trading volume in LAWS on May 17

increased dramatically from an average daily trading volume that month of approximately

14,000 shares per day to more than 170,000 shares on this day, and the vast majority of the

170,000 shares traded between approximately 1:00 p.m. and 2:00 p.m. ET. During this period of

time, investors other than Willner and Individual A who purchased LAWS shares paid artificially

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 8 of 12 PageID #: 8 



inflated prices for those securities.

27. During the Relevant Period, Willner coordinated trades at artificially high (or

low) prices with Individual A on a number of other occasions as well.

28. During the Relevant Period, Willner knew, or was reckless in not knowing, that

Individual A accessed, without authorization, the brokerage accounts of at least 110 Victims,

including Victim Nos. 1 — 4 referenced herein.

29. As a result of the conduct described herein, Willner defrauded a number of

Victims through the fraudulent trading and market manipulation scheme. Willner generated at

least $700,000 in profits from the scheme.

FIRST CLAIM FOR RELIEF
FRAUD IN THE OFFER OR SALE OF SECURITIES

(Violations of Section 17(a)(1) and (3) of the Securities Act)

30. Paragraphs 1 through 29 above are re-alleged and incorporated by reference as if

fully set forth herein.

31. By reason of the conduct described above, Willner, in connection with the offer or

sale of securities, by the use of the means or instrumentalities of interstate commerce or of the

mails, directly or indirectly, acting with the requisite degree of knowledge or state of mind

(i) employed devices, schemes, or artifices to defraud; and (ii) engaged in transactions, practices,

or courses of business which operated or would operate as a fraud or deceit upon any persons,

including purchasers or sellers of the securities.

32. By reason of the conduct described above, Willner violated Securities Act Section

17(a)(1) and (3) [15 U.S.C. § 77q(a)(1) and (3)].

D

Case 1:17-cv-06305 Document 1 Filed 10/30/17 Page 9 of 12 PageID #: 9 



SECOND CLAIM FOR RELIEF

FRAUD IN CONNECTION WITH THE PURCHASE OR SALE OF SECURITIES

(Violations of Section 10(b) of the Exchange Act and Rules lOb-5(a) and (c) thereunder)

33. Paragraphs 1 through 29 above are re-alleged and incorporated by reference as if

fully set forth herein.

34. By reason of the conduct described above, Willner, directly or indirectly, in

connection with the purchase or sale of securities, by the use of the means or instrumentalities of

interstate commerce or of the mails, or of any facility of any national securities exchange,

intentionally, knowingly or recklessly, (i) employed devices, schemes, or artifices to defraud;

and (ii) engaged in acts, practices, or courses of business which operated or would operate as a

fraud or deceit upon any persons, including purchasers or sellers of the securities.

35. By reason of the conduct described above, Willner violated Exchange Act Section

10(b) [15 U.S.C. § 78j(b)] and Rules lOb-5(a) and (c) [17 C.F.R. § 240.1Ob-5(a) and (c)]

thereunder.

THIRD CLAIM FOR RELIEF
MARKET MANIPULATION

(Violations of Section 9(a)(2) of the Exchange Act)

36. Paragraphs 1 through 29 above are re-alleged and incorporated by reference as if

fully set forth herein.

37. By reason of the foregoing, Willner directly or indirectly, acting intentionally,

knowingly or recklessly, in connection with the purchase or sale of securities, by use of the

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

exchange or the mail, effected, alone or with one or more persons, a series of transactions in

securities registered on a national exchange, creating actual or apparent active trading in such

securities, or raising or depressing the price of such securities, for the purpose of inducing the

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purchase or sale of such securities by others.

38. By engaging in the conduct described above, Willner violated Section 9(a)(2) of

the Exchange Act [15 U.S.C. § 78i(a)(2)].

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that this Court:

A. Permanently restrain and enjoin Willner, his officers, agents, servants, employees

and attorneys, and those persons in active concert or participation with him who receive actual

notice of the injunction by personal service or otherwise, and each of them, from violating

Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Sections 9(a)(2) [15 U.S.C. 78i(a)(2)]

and 10(b) of the Exchange Act [15 U.S.C. 78j(b)], and Rule lOb-5 thereunder [17 C.F.R.

240. l Ob-5].

B. Order Willner to disgorge, with prejudgment interest, all ill-gotten gains obtained

by reason of the unlawful conduct alleged in this Complaint;

C. Order Willner to pay civil monetary penalties pursuant to Section 20(d) of the

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C.

§ 78u(d)(3)]; and

D. Grant such other and further relief as this Court may deem appropriate.

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JURY DEMAND

The Commission demands a jury in this matter for all claims so triable.

DATED: October 30, 2017

Respectfully submitted,

BY~ ~~ ~_

Joseph G. Sansone
SECURITIES AND EXCHANGE COMMISSION
200 Vesey Street, Suite 400
New York, New York 10281-1022
Telephone (Forni): (617) 573-8827
Email (Forni): [email protected]

Of Counsel:
Eric A. Forni*
Susan Cooke Anderson*
Marcus D. Fruchter*
Andrew R. McFall*

*Not admitted in EDNY (to be admitted pro hac vice)

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