Trader Kupersmith Pleads Guilty to Fraud in New York
Scott Kupersmith, who was charged with taking part in a scheme involving $60 million in illegal stock trades, pleaded guilty to fraud and grand larceny in New York, according to the Manhattan district attorney’s office.
In April, Kupersmith’s lawyer said he planned to enter the plea. Prosecutors said Kupersmith, 47, used assumed identities to create five shell companies employed in the scheme and defrauded at least six broker-dealers of more than $830,000.
Kupersmith pleaded guilty to grand larceny in the first and second degrees, and scheme to defraud in the first degree yesterday, said Joan Vollero, a spokeswoman for Manhattan District Attorney Cyrus Vance Jr. Kupersmith set up and controlled companies including Northbrae Capital Group Inc., Fullerton Capital Group Inc., and Oxford Smith Advisors LLC, according to court records.
Kupersmith, of Boca Raton, Florida, and formerly of Alpine, New Jersey, was arrested in Florida in October after a joint investigation by the U.S. attorney’s office in New Jersey and the U.S. Securities and Exchange Commission, according to court documents and a statement from Vance’s office. He’s in federal custody in Essex County, New Jersey.
Kupersmith and others are accused of taking part in a scheme known as “free-riding,” where a customer buys or sells securities in a brokerage account without having the money or securities to pay for them, according to a court document filed by federal prosecutors in New Jersey.
“Free-riders” typically cover their purchases by buying shares of the same security on the same day through another firm, and attempt to profit from short-term price changes without putting personal assets at risk, according to the court filing.
He hasn’t pleaded in the federal case yet, according to Vance’s office.
Kupersmith and associates opened more than three dozen brokerage accounts in 2008 and 2009, prosecutors said in the court filing. He traded securities including shares of Baidu Inc. (BIDU), the owner of China’s dominant search engine, and CME Group Inc. (CME), the parent company of the New York Mercantile Exchange, prosecutors said.
He bought about $64 million worth of securities, and made more than $1.2 million through the illegal trades, according to a statement from Vance’s office. The broker-dealers, which include Morgan Keegan & Co., William Blair & Co. and JPMorgan Securities LLC, lost more than $830,000, Vance’s office has said.
Kupersmith also solicited investors for a hedge fund he claimed to control, telling them it had an annual return of about 30 percent and that he had personally made more than $1 million in the past year, prosecutors said. He told investors their principal was guaranteed, and told at least one potential investor that he would get a return of about 43 percent every three months.
The New York case is People v. Kupersmith, 04360-2011, New York state Supreme Court (Manhattan). The federal cases are U.S. v. Kupersmith, 11-mj-03750, and Securities and Exchange Commission v. Kupersmith, 11-cv-06277, U.S. District Court, District of New Jersey (Newark).
To contact the editor responsible for this story: Michael Hytha at email@example.com