SEC v. TRAVIS TREUSCH, No. 1:24-cv-01050, Eastern District of New York (Apr. 2, 2024) — Complaint

ANTONIA M. APPS
REGIONAL DIRECTOR
Joseph G. Sansone
Lindsay S. Moilanen
Christopher J. Dunnigan
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-

TRAVIS TREUSCH,

                                             Defendant.

COMPLAINT

24 Civ. 01050

JURY TRIAL DEMANDED

Plaintiff Securities and Exchange Commission (“Commission”), for its Complaint against
Defendant Travis Treusch (“Treusch”), alleges as follows:
SUMMARY
1. From at least August 2020 through January 2022 (the “Relevant Period”), Treusch
helped perpetuate a sophisticated fraudulent scheme from which he and others obtained illicit
profits of at least $2 million at the expense of a broker-dealer firm (“Broker A”).
2. Treusch knowingly or recklessly helped Eduardo Hernandez (“Hernandez”) and
Christopher Flagg (“Flagg” and, with Hernandez, “Principals”)—all three of whom reside or
resided during the Relevant Period in Copiague, New York—engage in a sophisticated version of

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a traditional “free riding” scheme.  The Principals, with Treusch’s assistance, essentially stole
“instant deposit” credits extended by Broker A and by other broker-dealers that provided similar
instant credits (“Similar Brokers”) and then abandoned the accounts that received the credits.
1

3. The scheme operated as follows: The Principals converted these instant deposit
credits 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 Similar Brokers) and profit-taking “winner” accounts (“Winner Accounts”) at
other broker-dealers.  Because the Principals 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 and Similar
Brokers.
4. This matched trading strategy guaranteed profits at the expense of Broker A and
Similar Brokers.  For example, at the Principals’ direction, the Loser Accounts at Broker A were
never funded by the account holders, despite those account holders representing to Broker A they
had sufficient funds in linked bank accounts.  The Principals’ strategy generally allowed them to
exhaust the instant deposit credits in the Loser Accounts at Broker A, before Broker A learned of
the insufficient funds in the linked bank accounts.
5. When Broker A or Similar Brokers subsequently restricted trading in the Loser
Accounts, the Principals (or their proxies) abandoned the Loser Accounts -- leaving Broker A and
Similar Brokers with the losses generated by the trading in these Loser Accounts, using the instant

1
  The Commission filed a complaint, naming Hernandez, Flagg, and two other individuals
as defendants and alleging that they committed securities fraud, in a related enforcement action,
SEC v. Hernandez et al., No. 23-civ.-8110 (SIL) (E.D.N.Y.).

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credits the accounts had received.  The Principals (or their proxies) then simply opened new Loser
Accounts in which they continued to conduct the free-riding scheme.
6. In approximately August 2020, after the scheme had been running since
approximately November 2018, the Principals recruited Treusch to the scheme.
7. Treusch opened at least one Loser Account at Broker A to be used in the scheme
and recruited others to open additional brokerage accounts at Broker A or Similar Brokers to be
used as Loser Accounts in the scheme.
8. Treusch recruited individuals to open brokerage accounts for use in the scheme by
posting screenshots of Hernandez’s and Flagg’s profitable trading, alongside offers for people to
make quick, easy money, to social media outlets, such as Instagram.  Treusch targeted
individuals who would agree to open new accounts or provide access to existing accounts at
Broker A or Similar Brokers for a nominal sum (the “Recruits”).
9. Treusch knew or recklessly disregarded that the Principals used these Loser
Accounts in connection with their trading scheme.
10. Treusch directed each of his Recruits to open a Loser Account at Broker A or
Similar Brokers and to link the brokerage account to a bank account that would purportedly
supply funding.  At the Principals’ direction, however, and as the Principals had warned him,
Treusch warned the Recruits not to leave any money in their linked bank accounts, so that there
would be no money to be transferred to the Loser Accounts to fund those accounts’ unprofitable
trading.
11. Once the Recruits opened new accounts at Broker A or Similar Brokers, Treusch
gave their account log-in credentials to the Principals, so that the Principals could access and
control the accounts and trade in the Recruits’ names.  The Principals paid Treusch

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approximately $300 to $500 for each Loser Account that he supplied them, which they
represented was a portion of the trading profits generated in the Winner Accounts.
12. The Principals used brokerage accounts in their own names as well as brokerage
accounts in the names of unsophisticated friends or family members (the “Nominees”) as Winner
Accounts.  Treusch also assisted in the scheme by recruiting two Nominees (the “Treusch
Nominees”) to open accounts to use as Winner Accounts, as part of the scheme.
13. All told, during the Relevant Period, Treusch knowingly or recklessly enabled the
scheme by opening at least one Loser Account at Broker A, recruiting dozens of Recruits to open
additional Loser Accounts at Broker A and recruiting the two Treusch Nominees to open Winner
Accounts through which the Principals conducted the trading scheme.
14. Treusch was compensated for each account that he secured for use in the scheme.
VIOLATIONS
15. By virtue of the foregoing conduct and as alleged further herein, Defendant aided
and abetted the Principals’ violations of 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)], in violation of Exchange Act 20(e) [15 U.S.C. § 78t(e)].
16. Unless Defendant is restrained and enjoined, he 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
17. The Commission brings this action pursuant to the authority conferred upon it by
Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].

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18. The Commission seeks a final judgment: (a) permanently enjoining Defendant
from violating Exchange Act Section 10(b) and Rule 10b-5 thereunder; (b) imposing a conduct-
based injunction prohibiting 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 Defendant
to pay disgorgement and prejudgment interest pursuant to Exchange Act Sections 21(d)(3),
21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and 78u(d)(7)]; (d) ordering Defendant
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.
 JURISDICTION AND VENUE
19. This Court has jurisdiction over this action pursuant to Exchange Act Section
27(a) [15 U.S.C. § 78aa].
20. Among other things, Defendant, directly and indirectly, has 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.
21. 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 Defendant was a resident of this
District during all of the time that he engaged in the fraudulent scheme, that he sent text
messages within, to and from, this District in connection with the scheme, including to the
Principals and to his Recruits and that he withdrew from and/or deposited cash into branches of
financial institutions located within this District in connection with the fraudulent scheme.

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DEFENDANT
22. Treusch, age 25, is a resident of Copiague, New York.  He is Flagg’s cousin.
OTHER RELEVANT INDIVIDUALS
23. Hernandez, age 33, is a resident of Lindenhurst, New York.  In 2023, SEC v.
Hernandez, Hernandez was charged with securities fraud in violation of Exchange Act, Section
10(b) and Rule 10b-5 thereunder.  He was also charged criminally in U.S. v. Hernandez, 23 CR
428 (Brown, J.) (E.D.N.Y.).
24. Flagg, age 28, is a resident of Copiague, New York.  He is Treusch’s cousin.  In
SEC v. Hernandez, Flagg was charged with securities fraud in violation of Exchange Act,
Section 10(b) and Rule 10b-5 thereunder.  He was also charged criminally in U.S. v. Hernandez,
23 CR 428 (SIL) (E.D.N.Y.).
FACTS
A. Background
25. As described in the Summary section above, the Principals engaged in a
sophisticated and complex free-riding scheme that took systematic advantage of the instant
deposit credit at Broker A, and other broker-dealers with similar instant deposit credits, to fund
the Principals’ guaranteed-to-be-profitable matched trading at the expense of Broker A, and
Similar Brokers, during the Relevant Period.
26. As described in more detail below, by free-riding on the instant deposit credit at,
for example, Broker A, to fund the trades matched with the trades in the Winner Accounts, the
Principals were able to essentially transfer the instant deposit credit to the Winner Accounts that
they controlled.
27. The Principals were limited in the amount of profit they could obtain from any

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one Loser Account to the maximum instant deposit credit extended it, for example $5,000 at
Broker A, as described below.
28. Once the instant deposit credit was exhausted, the account was useless, because
the Principals had no intention of funding the account and because Broker A, and Similar
Brokers, upon learning there were insufficient funds available to fund the trading, generally froze
the account, ultimately closing it entirely.
29. Accordingly, in order to perpetuate the scheme and the flow of profits, the
Principals needed more Recruits to open new Loser Accounts in which to trade.
B. Treusch Helps Establish Winner and Loser Accounts to Facilitate Free-Riding
Scheme

1. Treusch Helps Establish Loser Accounts at Broker A

a. Broker A’s Account Types and Instant Deposit Credit
30. 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
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.
31.   During the Relevant Period, Broker A offered Broker A Gold (“Gold”), a
subscription service that provided account holders with a portfolio value of up to $10,000, the
option to open 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.
32. Broker A’s instant deposit credit became available to the account holder as soon
as they linked a bank account in their name to their Broker A account and initiated an ACH

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funds transfer deposit  from the linked bank account to their Broker A account.  The account
holder could initiate the transfer of funds from their bank account to their Broker A account as
soon as the two accounts were linked.  The initiation of the funds transfer triggered Broker A’s
deposit of the instant credit, in the amount of the transfer request, into the account holder’s
Broker A account, allowing the account holder to trade while the transfer was pending, a process
that could ordinarily take up to five business days to complete.
b. Broker A Account Opening and Account Holder Representations
33. Broker A account holders made several representations in connection with
opening a 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.
34. 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:
• “[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.”
• “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.”
• “[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
“knowingly giving false information for the purpose of inducing [Broker A] to
extend credit is a federal crime.”
• “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].”

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c. Recruitment of Account Holders and Opening of the Loser Accounts at
Broker A by Treusch
35. Because the Principals’ fraudulent scheme relied on taking advantage of Broker
A’s instant deposit credit, opening numerous Loser Accounts was a critical part of the scheme.
36. The Principals directly, or through Treusch and other recruiters, solicited the
Recruits, individuals who had little trading experience and did not ask many questions.
37. First, Treusch opened a Loser Account at Broker A himself, to assist in the
scheme.  The Principals recruited Treusch by offering him an opportunity to make “easy money”
if he opened a Broker A account for them to trade in. Treusch agreed to open the account and did
so.
38. The Principals then directed Treusch to set up and link a bank account to that
Broker A account, which he did.  The Principals specifically warned Treusch to make sure there
were no funds in the linked bank account, so that Broker A could not receive money from that
account.
39. The Principals directed Treusch to provide them his Broker A account login
credentials; Treusch did as directed, and was paid approximately $500 to do so, purportedly as a
percentage of the profits the Principals made trading through the account.
40. Treusch subsequently received notice from Broker A that his Broker A account
balance had dropped to roughly -$4,000 and that Broker A planned to terminate the account.
The Principals told Treusch 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.”
41. Next, and shortly thereafter, Treusch began recruiting others to open Loser
Accounts at Broker A, for the Principals to use to perpetrate the scheme.

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42. During the Relevant Period, Treusch recruited dozens of people to open Loser
Accounts at Broker A and link these Loser Accounts to online bank accounts.
43. Treusch frequently used social media outlets, like Instagram, to seek out new
Recruits with promises of easy money, soliciting them by posting screenshots of profitable
brokerage statements that he received from a Principal, alongside offers to make quick, easy
money.  People responded to the posts and agreed to give their existing Broker A accounts to, or
to set up new accounts at Broker A for, Treusch and the Principals, in exchange for a purported
nominal percentage of the profits.
44. In addition to directing Recruits to set up Broker A accounts, Treusch 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.  As Treusch had been directed to do by the Principals, Treusch in turn
warned Recruits not to leave any money in their linked bank accounts.
45. Treusch knew, or was reckless in not knowing, the nature of the representations
required of account holders to open accounts, having opened a Broker A Loser Account in his
own name as described above.
46. Treusch knew, or was reckless in not knowing, the Principals intended to use the
Broker A Loser Accounts as part of their trading scheme.
47. Treusch’s role in opening new Broker A Loser Accounts provided substantial
assistance to the Principals by, among other things, allowing them to take advantage of the
instant deposit credit.
d. The Principals’ Control and Use of the Broker A Loser Accounts
48. Treusch then provided the Principals with the account login information for

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accounts in the names of the individuals he had recruited for this purpose.
49. In order to access the Broker A accounts, the Principals obtained the account
login information – usernames and passwords for the accounts – both directly, and from Treusch
and other recruiters, who had obtained it from the Recruits.  Further, the Principals directly, or
indirectly through Treusch and/or other recruiters, changed the passwords and/or associated
emails to those of their own choosing, so as to maintain control of the accounts, while concealing
the extent of that control.
50. By giving the Principals the Recruits’ account login credentials, and therefore
control over the Broker A Loser Accounts, Treusch and other recruiters provided the Principals
with substantial assistance in executing their free riding scheme.
51. 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
generally up to $5,000 in credit on each account.  The Principals initiated directly, or indirectly
through Treusch and other recruiters, the funds transfer requests that triggered the instant deposit
credit.
52. 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.
2. Treusch Helps Establish Winner Accounts at Other Broker-Dealers
53. 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, or other instant credit-extending broker dealers at which the Principals controlled the
Loser Accounts, in order to conceal the nature and extent of the Principals’ and Treusch’s roles
in the scheme and to evade detection by Broker A, or other instant credit-extending broker
dealers at which the Principals controlled the Loser Accounts.

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54. The Principals solicited Nominees, directly and indirectly through Treusch and
other recruiters, to open Winner Accounts in their own names for the Principals to trade in.
Using Nominees further disguised the Principals’ and Treusch’s roles in the free-riding scheme.
55. Treusch solicited at least two Nominees (collectively the “Treusch Nominees”) to
open brokerage accounts for Hernandez to trade in.  Specifically, Hernandez, along with
Treusch, told each Treusch Nominee that Hernandez would deposit his own funds into their
accounts and use those accounts to execute profitable trades -- each would receive a percentage
of the profits and Hernandez would receive the rest.  Hernandez also paid Treusch what he
represented to Treusch was a portion of the profits earned trading in the Treusch Nominee
accounts.
56. The Treusch Nominees had no trading experience and understood generally that
Hernandez was a legitimate trader who traded in their accounts.  Each agreed to and did, with the
assistance of Hernandez and Treusch, set up accounts and cede control of them to Hernandez,
and each provided their account login credentials to Hernandez, so that Hernandez could trade in
their respective accounts.
57. Hernandez conducted at least some of his trading in the Treusch Nominee
accounts while Treusch, and sometimes the Treusch Nominee, was present.
C. The Principals Engage in Matched Trading to Take Advantage of Instant Deposit
Credit

58. The Principals generally began to trade in the Loser Accounts at Broker A, for
example, within days after an account was opened and almost immediately after the instant
deposit credit was available in the Loser Account.
59. 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

 13
trading began and ended on the day it started, before Broker A, or other instant credit-extending
broker dealers, learned there were insufficient funds in the linked bank account to fund the
brokerage account.
60. 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
option contract can serve to provide leverage and the potential for greater profits than simply
purchasing the stock.
61. “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.
62. 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.
63. 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

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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 at which no rational market participants would
trade.
64. 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.
65. In connection with the 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.
66. 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.
67. 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.
68. Further, 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 when the deal closed.  Options with these characteristics
usually sold for around $0.05-$0.10 per contract.

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69. 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.
70. 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.
71. 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 same put option series at, or slightly higher than, the limit price of the Winner Account’s
sell to open order.
72. 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.
73. 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.
74. 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.

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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75. The exchange would again automatically match the trades placed by the Winner
and Loser Accounts, closing out the positions for both accounts.
76. 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.
77. 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 instant
deposit credit they received in the Loser Accounts, up to $5,000, for example, at Broker A.
78. To further conceal 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 Loser Accounts, or between multiple Winner Accounts and one Loser Account, until
the Loser Account had exhausted the credit.
D. The Principals and Treusch Deceive Broker A
79. The Principals and Treusch deceived and extracted money from Broker A, by
essentially taking the instant deposit credit extended to the Loser Accounts at Broker A and
transferring this credit to the Winner Accounts by executing matched trades between the Winner
and Loser Accounts.
80. The Principals and Treusch intentionally deceived Broker A by soliciting and
directing the Recruits to open Loser Accounts at Broker A in their own names, in order to
conceal the Principals’ and Treusch’s identity and involvement in the accounts’ activity.
81. The Principals and Treusch also intentionally deceived Broker A when Treusch,
at the Principals’ direction, opened a Broker A account in his own name, in order to conceal the
Principals’ identity and involvement in Treusch’s Broker A account activity.

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82. The Principals and Treusch also intentionally deceived Broker A directly, and
indirectly through the Recruits, by making representations to Broker A in connection with
opening the accounts that the Principals and Treusch 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 the Principals and Treusch 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 the Principals and Treusch directed the opening of Broker A accounts with the intent of the
Principals 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 the Principals and Treusch directed the Recruits to
provide their usernames to them and the Principals’ changed the associated emails to those of
their own choosing so as to maintain control, while concealing the extent of that control.
83. The Principals and Treusch, along with others, also intentionally deceived Broker
A by churning through hundreds of Broker A accounts, all in the names of others, to perpetuate
the scheme.
CLAIM FOR RELIEF
Aiding and Abetting Violations of Exchange Act Section 10(b)
and Rule 10b-5(a) and (c) Thereunder

84. The Commission re-alleges and incorporates by reference here the allegations in
paragraphs 1-82 of this Complaint.
85. As alleged above, Hernandez and Flagg violated Exchange Act Section 10(b)
[15 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) [17 C.F.R. § 240.10b-5(a) and (c)] thereunder.
86. Defendant Treusch, by specifically recruiting Recruits to open Loser Accounts at

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Broker A, for example, and Nominees to open Winner Accounts for Hernandez to trade in, both
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.
87. By reason of the foregoing, Defendant Treusch is liable pursuant to Exchange Act
Section 20(e) [15 U.S.C. § 78t(e)], for aiding and abetting Hernandez’s and Flagg’s violations of
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)] and unless enjoined, Defendant Treusch will again aid and abet
these violations.
PRAYER FOR RELIEF

 WHEREFORE, the Commission respectfully requests that the Court enter a Final
Judgment:
I.
Permanently enjoining and restraining Defendant and his agents, servants, employees and
attorneys and all persons in active concert or participation with him 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 a conduct-based injunction prohibiting 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;
III.
Ordering Defendant to disgorge his ill-gotten gains received directly or indirectly, as a

 19
result of the conduct alleged in this Complaint, plus prejudgment interest thereon, pursuant to
Exchange Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and
78u(d)(7)];
IV.
Ordering Defendant to pay civil monetary penalties pursuant to Exchange Act Section
21(d)(3) [15 U.S.C. § 78u(d)(3)]; and
V.
Granting any other and further relief this Court may deem just and proper.
JURY DEMAND
 The Commission demands a trial by jury.

Dated: New York, New York
February 9, 2024
_______________________________
ANTONIA APPS
REGIONAL DIRECTOR
Joseph G. Sansone
Lindsay S. Moilanen
Christopher Dunnigan
Cynthia A. Matthews
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]

ANTONIA M. APPS 

REGIONAL DIRECTOR 

Joseph G. Sansone 

Lindsay S. Moilanen 

Christopher J. Dunnigan 

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- 
 

TRAVIS TREUSCH,     

  
                                             Defendant.  
 

 

 
 
COMPLAINT 

   
24 Civ. 01050    

 

   

JURY TRIAL DEMANDED 

  

           

          

 

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

Defendant Travis Treusch (“Treusch”), alleges as follows: 

SUMMARY 

1. From at least August 2020 through January 2022 (the “Relevant Period”), Treusch 

helped perpetuate a sophisticated fraudulent scheme from which he and others obtained illicit 

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

2. Treusch knowingly or recklessly helped Eduardo Hernandez (“Hernandez”) and 

Christopher Flagg (“Flagg” and, with Hernandez, “Principals”)—all three of whom reside or 

resided during the Relevant Period in Copiague, New York—engage in a sophisticated version of 

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a traditional “free riding” scheme.  The Principals, with Treusch’s assistance, essentially stole 

“instant deposit” credits extended by Broker A and by other broker-dealers that provided similar 

instant credits (“Similar Brokers”) and then abandoned the accounts that received the credits.1 

3. The scheme operated as follows: The Principals converted these instant deposit 

credits 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 Similar Brokers) and profit-taking “winner” accounts (“Winner Accounts”) at 

other broker-dealers.  Because the Principals 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 and Similar 

Brokers. 

4. This matched trading strategy guaranteed profits at the expense of Broker A and 

Similar Brokers.  For example, at the Principals’ direction, the Loser Accounts at Broker A were 

never funded by the account holders, despite those account holders representing to Broker A they 

had sufficient funds in linked bank accounts.  The Principals’ strategy generally allowed them to 

exhaust the instant deposit credits in the Loser Accounts at Broker A, before Broker A learned of 

the insufficient funds in the linked bank accounts.   

5. When Broker A or Similar Brokers subsequently restricted trading in the Loser 

Accounts, the Principals (or their proxies) abandoned the Loser Accounts -- leaving Broker A and 

Similar Brokers with the losses generated by the trading in these Loser Accounts, using the instant 

 
1  The Commission filed a complaint, naming Hernandez, Flagg, and two other individuals 

as defendants and alleging that they committed securities fraud, in a related enforcement action, 

SEC v. Hernandez et al., No. 23-civ.-8110 (SIL) (E.D.N.Y.). 

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credits the accounts had received.  The Principals (or their proxies) then simply opened new Loser 

Accounts in which they continued to conduct the free-riding scheme.   

6. In approximately August 2020, after the scheme had been running since 

approximately November 2018, the Principals recruited Treusch to the scheme.   

7. Treusch opened at least one Loser Account at Broker A to be used in the scheme 

and recruited others to open additional brokerage accounts at Broker A or Similar Brokers to be 

used as Loser Accounts in the scheme.   

8. Treusch recruited individuals to open brokerage accounts for use in the scheme by 

posting screenshots of Hernandez’s and Flagg’s profitable trading, alongside offers for people to 

make quick, easy money, to social media outlets, such as Instagram.  Treusch targeted 

individuals who would agree to open new accounts or provide access to existing accounts at 

Broker A or Similar Brokers for a nominal sum (the “Recruits”).   

9. Treusch knew or recklessly disregarded that the Principals used these Loser 

Accounts in connection with their trading scheme. 

10. Treusch directed each of his Recruits to open a Loser Account at Broker A or 

Similar Brokers and to link the brokerage account to a bank account that would purportedly 

supply funding.  At the Principals’ direction, however, and as the Principals had warned him, 

Treusch warned the Recruits not to leave any money in their linked bank accounts, so that there 

would be no money to be transferred to the Loser Accounts to fund those accounts’ unprofitable 

trading.   

11. Once the Recruits opened new accounts at Broker A or Similar Brokers, Treusch 

gave their account log-in credentials to the Principals, so that the Principals could access and 

control the accounts and trade in the Recruits’ names.  The Principals paid Treusch 

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approximately $300 to $500 for each Loser Account that he supplied them, which they 

represented was a portion of the trading profits generated in the Winner Accounts.   

12. The Principals used brokerage accounts in their own names as well as brokerage 

accounts in the names of unsophisticated friends or family members (the “Nominees”) as Winner 

Accounts.  Treusch also assisted in the scheme by recruiting two Nominees (the “Treusch 

Nominees”) to open accounts to use as Winner Accounts, as part of the scheme.   

13. All told, during the Relevant Period, Treusch knowingly or recklessly enabled the 

scheme by opening at least one Loser Account at Broker A, recruiting dozens of Recruits to open 

additional Loser Accounts at Broker A and recruiting the two Treusch Nominees to open Winner 

Accounts through which the Principals conducted the trading scheme.   

14. Treusch was compensated for each account that he secured for use in the scheme. 

VIOLATIONS 

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

and abetted the Principals’ violations of 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)], in violation of Exchange Act 20(e) [15 U.S.C. § 78t(e)].  

16. Unless Defendant is restrained and enjoined, he 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 

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

Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].  

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18. The Commission seeks a final judgment: (a) permanently enjoining Defendant 

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

based injunction prohibiting 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 Defendant 

to pay disgorgement and prejudgment interest pursuant to Exchange Act Sections 21(d)(3), 

21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and 78u(d)(7)]; (d) ordering Defendant 

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. 

 JURISDICTION AND VENUE 

19. This Court has jurisdiction over this action pursuant to Exchange Act Section 

27(a) [15 U.S.C. § 78aa].  

20. Among other things, Defendant, directly and indirectly, has 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. 

21. 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 Defendant was a resident of this 

District during all of the time that he engaged in the fraudulent scheme, that he sent text 

messages within, to and from, this District in connection with the scheme, including to the 

Principals and to his Recruits and that he withdrew from and/or deposited cash into branches of 

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

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DEFENDANT 

22. Treusch, age 25, is a resident of Copiague, New York.  He is Flagg’s cousin. 

OTHER RELEVANT INDIVIDUALS 

23. Hernandez, age 33, is a resident of Lindenhurst, New York.  In 2023, SEC v. 

Hernandez, Hernandez was charged with securities fraud in violation of Exchange Act, Section 

10(b) and Rule 10b-5 thereunder.  He was also charged criminally in U.S. v. Hernandez, 23 CR 

428 (Brown, J.) (E.D.N.Y.). 

24. Flagg, age 28, is a resident of Copiague, New York.  He is Treusch’s cousin.  In 

SEC v. Hernandez, Flagg was charged with securities fraud in violation of Exchange Act, 

Section 10(b) and Rule 10b-5 thereunder.  He was also charged criminally in U.S. v. Hernandez, 

23 CR 428 (SIL) (E.D.N.Y.). 

FACTS 

A. Background  

25. As described in the Summary section above, the Principals engaged in a 

sophisticated and complex free-riding scheme that took systematic advantage of the instant 

deposit credit at Broker A, and other broker-dealers with similar instant deposit credits, to fund 

the Principals’ guaranteed-to-be-profitable matched trading at the expense of Broker A, and 

Similar Brokers, during the Relevant Period.   

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

for example, Broker A, to fund the trades matched with the trades in the Winner Accounts, the 

Principals were able to essentially transfer the instant deposit credit to the Winner Accounts that 

they controlled.   

27. The Principals were limited in the amount of profit they could obtain from any 

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one Loser Account to the maximum instant deposit credit extended it, for example $5,000 at 

Broker A, as described below. 

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

the Principals had no intention of funding the account and because Broker A, and Similar 

Brokers, upon learning there were insufficient funds available to fund the trading, generally froze 

the account, ultimately closing it entirely.   

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

Principals needed more Recruits to open new Loser Accounts in which to trade.   

B. Treusch Helps Establish Winner and Loser Accounts to Facilitate Free-Riding 
Scheme 
 
1. Treusch Helps Establish Loser Accounts at Broker A 

 

a. Broker A’s Account Types and Instant Deposit Credit  

30. 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 

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. 

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

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

option to open 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.   

32. Broker A’s instant deposit credit became available to the account holder as soon 

as they linked a bank account in their name to their Broker A account and initiated an ACH 

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funds transfer deposit  from the linked bank account to their Broker A account.  The account 

holder could initiate the transfer of funds from their bank account to their Broker A account as 

soon as the two accounts were linked.  The initiation of the funds transfer triggered Broker A’s 

deposit of the instant credit, in the amount of the transfer request, into the account holder’s 

Broker A account, allowing the account holder to trade while the transfer was pending, a process 

that could ordinarily take up to five business days to complete. 

b. Broker A Account Opening and Account Holder Representations 

33. Broker A account holders made several representations in connection with 

opening a 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. 

34. 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: 

• “[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.”   

• “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.”   

• “[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 

“knowingly giving false information for the purpose of inducing [Broker A] to 

extend credit is a federal crime.” 

• “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].”  

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c. Recruitment of Account Holders and Opening of the Loser Accounts at 

Broker A by Treusch 

35. Because the Principals’ fraudulent scheme relied on taking advantage of Broker 

A’s instant deposit credit, opening numerous Loser Accounts was a critical part of the scheme. 

36. The Principals directly, or through Treusch and other recruiters, solicited the 

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

37. First, Treusch opened a Loser Account at Broker A himself, to assist in the 

scheme.  The Principals recruited Treusch by offering him an opportunity to make “easy money” 

if he opened a Broker A account for them to trade in. Treusch agreed to open the account and did 

so.   

38. The Principals then directed Treusch to set up and link a bank account to that 

Broker A account, which he did.  The Principals specifically warned Treusch to make sure there 

were no funds in the linked bank account, so that Broker A could not receive money from that 

account.   

39. The Principals directed Treusch to provide them his Broker A account login 

credentials; Treusch did as directed, and was paid approximately $500 to do so, purportedly as a 

percentage of the profits the Principals made trading through the account. 

40. Treusch subsequently received notice from Broker A that his Broker A account 

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

The Principals told Treusch 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.” 

41. Next, and shortly thereafter, Treusch began recruiting others to open Loser 

Accounts at Broker A, for the Principals to use to perpetrate the scheme.   

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42. During the Relevant Period, Treusch recruited dozens of people to open Loser 

Accounts at Broker A and link these Loser Accounts to online bank accounts.   

43. Treusch frequently used social media outlets, like Instagram, to seek out new 

Recruits with promises of easy money, soliciting them by posting screenshots of profitable 

brokerage statements that he received from a Principal, alongside offers to make quick, easy 

money.  People responded to the posts and agreed to give their existing Broker A accounts to, or 

to set up new accounts at Broker A for, Treusch and the Principals, in exchange for a purported 

nominal percentage of the profits. 

44. In addition to directing Recruits to set up Broker A accounts, Treusch 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.  As Treusch had been directed to do by the Principals, Treusch in turn 

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

45. Treusch knew, or was reckless in not knowing, the nature of the representations 

required of account holders to open accounts, having opened a Broker A Loser Account in his 

own name as described above.   

46. Treusch knew, or was reckless in not knowing, the Principals intended to use the 

Broker A Loser Accounts as part of their trading scheme. 

47. Treusch’s role in opening new Broker A Loser Accounts provided substantial 

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

instant deposit credit.  

d. The Principals’ Control and Use of the Broker A Loser Accounts 

48. Treusch then provided the Principals with the account login information for 

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accounts in the names of the individuals he had recruited for this purpose.   

49. In order to access the Broker A accounts, the Principals obtained the account 

login information – usernames and passwords for the accounts – both directly, and from Treusch 

and other recruiters, who had obtained it from the Recruits.  Further, the Principals directly, or 

indirectly through Treusch and/or other recruiters, changed the passwords and/or associated 

emails to those of their own choosing, so as to maintain control of the accounts, while concealing 

the extent of that control.  

50. By giving the Principals the Recruits’ account login credentials, and therefore 

control over the Broker A Loser Accounts, Treusch and other recruiters provided the Principals 

with substantial assistance in executing their free riding scheme. 

51. 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 

generally up to $5,000 in credit on each account.  The Principals initiated directly, or indirectly 

through Treusch and other recruiters, the funds transfer requests that triggered the instant deposit 

credit. 

52. 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. 

2. Treusch Helps Establish Winner Accounts at Other Broker-Dealers 

53. 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, or other instant credit-extending broker dealers at which the Principals controlled the 

Loser Accounts, in order to conceal the nature and extent of the Principals’ and Treusch’s roles 

in the scheme and to evade detection by Broker A, or other instant credit-extending broker 

dealers at which the Principals controlled the Loser Accounts. 

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54. The Principals solicited Nominees, directly and indirectly through Treusch and 

other recruiters, to open Winner Accounts in their own names for the Principals to trade in.  

Using Nominees further disguised the Principals’ and Treusch’s roles in the free-riding scheme.  

55. Treusch solicited at least two Nominees (collectively the “Treusch Nominees”) to 

open brokerage accounts for Hernandez to trade in.  Specifically, Hernandez, along with 

Treusch, told each Treusch Nominee that Hernandez would deposit his own funds into their 

accounts and use those accounts to execute profitable trades -- each would receive a percentage 

of the profits and Hernandez would receive the rest.  Hernandez also paid Treusch what he 

represented to Treusch was a portion of the profits earned trading in the Treusch Nominee 

accounts. 

56. The Treusch Nominees had no trading experience and understood generally that 

Hernandez was a legitimate trader who traded in their accounts.  Each agreed to and did, with the 

assistance of Hernandez and Treusch, set up accounts and cede control of them to Hernandez, 

and each provided their account login credentials to Hernandez, so that Hernandez could trade in 

their respective accounts. 

57. Hernandez conducted at least some of his trading in the Treusch Nominee 

accounts while Treusch, and sometimes the Treusch Nominee, was present.   

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

 

58. The Principals generally began to trade in the Loser Accounts at Broker A, for 

example, within days after an account was opened and almost immediately after the instant 

deposit credit was available in the Loser Account.   

59. 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 

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trading began and ended on the day it started, before Broker A, or other instant credit-extending 

broker dealers, learned there were insufficient funds in the linked bank account to fund the 

brokerage account. 

60. 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 

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

purchasing the stock. 

61. “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. 

62. 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. 

63. 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 

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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 at which no rational market participants would 

trade. 

64. 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.   

65. In connection with the 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.   

66. 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.  

67. 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.   

68. Further, 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 when the deal closed.  Options with these characteristics 

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

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69. 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.   

70. 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. 

71. 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 same put option series at, or slightly higher than, the limit price of the Winner Account’s 

sell to open order.   

72. 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.   

73. 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.   

74. 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.   

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

and Loser Accounts, closing out the positions for both accounts.   

76. 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. 

77. 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 instant 

deposit credit they received in the Loser Accounts, up to $5,000, for example, at Broker A.   

78. To further conceal 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 Loser Accounts, or between multiple Winner Accounts and one Loser Account, until 

the Loser Account had exhausted the credit.  

D. The Principals and Treusch Deceive Broker A  

79. The Principals and Treusch deceived and extracted money from Broker A, by 

essentially taking the instant deposit credit extended to the Loser Accounts at Broker A and 

transferring this credit to the Winner Accounts by executing matched trades between the Winner 

and Loser Accounts.   

80. The Principals and Treusch intentionally deceived Broker A by soliciting and 

directing the Recruits to open Loser Accounts at Broker A in their own names, in order to 

conceal the Principals’ and Treusch’s identity and involvement in the accounts’ activity.   

81. The Principals and Treusch also intentionally deceived Broker A when Treusch, 

at the Principals’ direction, opened a Broker A account in his own name, in order to conceal the 

Principals’ identity and involvement in Treusch’s Broker A account activity.  

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82. The Principals and Treusch also intentionally deceived Broker A directly, and 

indirectly through the Recruits, by making representations to Broker A in connection with 

opening the accounts that the Principals and Treusch 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 the Principals and Treusch 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 the Principals and Treusch directed the opening of Broker A accounts with the intent of the 

Principals 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 the Principals and Treusch directed the Recruits to 

provide their usernames to them and the Principals’ changed the associated emails to those of 

their own choosing so as to maintain control, while concealing the extent of that control.   

83. The Principals and Treusch, along with others, also intentionally deceived Broker 

A by churning through hundreds of Broker A accounts, all in the names of others, to perpetuate 

the scheme. 

CLAIM FOR RELIEF 

Aiding and Abetting Violations of Exchange Act Section 10(b) 

and Rule 10b-5(a) and (c) Thereunder 

 

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

paragraphs 1-82 of this Complaint. 

85. As alleged above, Hernandez and Flagg violated Exchange Act Section 10(b) 

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

86. Defendant Treusch, by specifically recruiting Recruits to open Loser Accounts at 

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Broker A, for example, and Nominees to open Winner Accounts for Hernandez to trade in, both 

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. 

87. By reason of the foregoing, Defendant Treusch is liable pursuant to Exchange Act 

Section 20(e) [15 U.S.C. § 78t(e)], for aiding and abetting Hernandez’s and Flagg’s violations of 

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)] and unless enjoined, Defendant Treusch will again aid and abet 

these violations. 

PRAYER FOR RELIEF 

 

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

Judgment: 

I. 

Permanently enjoining and restraining Defendant and his agents, servants, employees and 

attorneys and all persons in active concert or participation with him 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 a conduct-based injunction prohibiting 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; 

III. 

Ordering Defendant to disgorge his ill-gotten gains received directly or indirectly, as a 

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result of the conduct alleged in this Complaint, plus prejudgment interest thereon, pursuant to 

Exchange Act Sections 21(d)(3), 21(d)(5) and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 78u(d)(5) and 

78u(d)(7)]; 

IV. 

Ordering Defendant to pay civil monetary penalties pursuant to Exchange Act Section 

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

V. 

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

JURY DEMAND 

 The Commission demands a trial by jury.  

 

 

Dated: New York, New York 
February 9, 2024   

_______________________________   

ANTONIA APPS 

REGIONAL DIRECTOR 

Joseph G. Sansone 

Lindsay S. Moilanen 

Christopher Dunnigan 

Cynthia A. Matthews 

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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