December 29, 2009 / 11:03 PM / 10 years ago

SEC alleges broker churned government accounts

WASHINGTON (Reuters) - U.S. securities regulators charged a Houston-based broker on Tuesday with defrauding two Florida government bodies while collecting $14 million in commissions.

The Securities and Exchange Commission alleged Harold Jaschke, while employed by First Allied Securities Inc, churned the accounts of the city of Kissimmee, Florida, and the Tohopekaliga Water Authority, and lied about what he was doing.

Churning is the practice of excessively trading in a client’s account in order to generate commissions.

The SEC’s civil complaint, filed in federal court in Orlando, Florida, accused Jaschke of engaging in risky, short-term trading strategies involving zero-coupon U.S. Treasury bonds, sometimes buying and selling them within days or on the same day. The watchdog agency said that Jaschke knew the municipalities’’ ordinances prohibited his trading strategy.

Neither municipality lost money, the SEC said, but only because the bond market swung in Jaschke’s favor. They could have lost $60 million over a two-year period, the SEC alleged.

Jaschke’s lawyer, Don DeGabrielle, said in an e-mail message that his client had been in the investment business for over 26 years “and has never had any complaints filed against him for the conduct of his business.”

“The two municipal clients actually made a profit as a result of Mr. Jaschke’s investment strategy in a volatile market,” he said. “He most certainly denies the allegations contained in the SEC’s injunction complaint. We will be filing our answer with the court, and are confident that this matter will be successfully defended.”

The SEC also said that Jeffrey Young, First Allied’s vice president of supervision, had agreed to pay a $25,000 fine for failing to properly supervise Jaschke.

Reporting by Dan Margolies; Editing by Andrew Hay and Jan Paschal

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