updated 07:30 pm EDT, Mon April 15, 2013
Rogue broker ruins own firm, defrauds another in bad bet
David Miller, a former stock trader who brought down his employer in a bet on Apple stock, has pleaded guilty to wire fraud and conspiracy in a plea deal reached with prosecutors. The incident began when Miller improperly bought 1,000 times the number of shares requested by a customer, expecting Apple's stock price to rise and then selling off the excess stock and pocketing the profit before the fraud was noticed. He had been facing up to 25 years in prison for the fraud, but instead will likely see a five-to-eight year sentence.
The incident occurred on October 25, when Miller "mistakenly" bought 1.625 million shares of AAPL -- about a billion dollars' worth -- and told colleagues at Rochdale Securities it was on behalf of a customer (who, in reality, had requested only 1,625 shares). Like most people, he expected Apple's stock to go up in price when the company reported its fiscal fourth-quarter earnings later that same day, since the company was widely expected to do very well.
In addition, Miller tried to set up a hedge fund to protect himself in case the stock fell, telling a rival brokerage that he was leaving Rochdale and might come to work for them. He asked the rival brokerage to sell a half-million shares of AAPL just before the earnings were announced, which they did -- earning a healthy profit that would have smoothed the way for Miller to jump ship if his bet was wrong. Had AAPL gone up and the rival broker lost money, Miller would have kept his job -- and profits -- at Rochdale.
The stock did in fact go down despite the wealth of good news from the Apple, due to a small slip in expected iPad growth, and the resulting shortfall of $5.3 million was so severe that Rochdale found itself undercapitalized, unable to make speculative purchases or execute customer order. The Stamford, CT Rochdale was then unable to continue operations and laid off its staff in November, withdrawing its registrations with the SEC and the state of Connecticut in late February after settling customer accounts. Rochadale was not a party in the case and was never accused of wrongdoing, according to Reuters.
Miller, 40, was arrested by the FBI shortly afterwards on fraud charges. His lawyer characterized the incident as "out of character for a kind and generous family man who has lived an otherwise law-abiding and good life." Attorney Kenneth Murphy told the court that Miller "deeply regrets what he has done and the harm it has caused to other people, including the former principals and employees at Rochdale." Miller also faces an SEC civil fraud suit to be tried later. His sentencing is scheduled for July 8.