Former CEO And Former Employee Of Broker-Dealer Charged With Falsifying Books And Records, Submitting False Reports To The Securities And Exchange Commission, And Making False Statements To SEC Staff
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced that ALAN SEIDEL and BENJAMIN MEKAWAY were charged this morning with falsifying the books and records of Seidel & Co., LLC (“Seidel & Co.” or the “Firm”), a broker-dealer they controlled, submitting false reports to the United States Securities and Exchange Commission (“SEC”) regarding Seidel & Co.’s net capital, and making false statements to SEC staff. As alleged, in late 2016, SEIDEL, Seidel & Co.’s chief executive officer, and MEKAWAY, a Seidel & Co. employee, falsified the financial records of Seidel & Co. to obscure the fact that Seidel & Co.’s net capital fell below the threshold mandated by SEC regulations, submitted reports to the SEC containing false representations regarding Seidel & Co.’s financial condition, and lied to SEC staff members who made inquiries about Seidel & Co.’s net capital. SEIDEL and MEKAWAY will be presented today before U.S. Magistrate Judge Stewart D. Aaron.
U.S. Attorney Geoffrey S. Berman said: “In order to protect investors and our markets, the SEC must be able to rely on the accuracy of the books and records and regulatory filings of the firms it oversees. By allegedly lying to the SEC about Seidel & Co.’s financial condition, and then attempting to cover it up, Alan Seidel and Benjamin Mekaway threatened to undermine the SEC’s vital mission.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “As alleged, these individuals, being fully aware of the financial status of their firm, chose to lie to the SEC by cooking their books to reflect a healthier financial condition. The investing public relies on the information provided by firms to make sound financial decisions. Shame on these two for allegedly falsifying their records and then trying to hide it from regulators. Criminal acts of the sort alleged here will always be uncovered by law enforcement, ensuring that individuals who break the law will be brought to justice.”
According to the Complaint filed today in Manhattan federal court:
At all relevant times, SEIDEL was the CEO of Seidel & Co., a Manhattan-based inter-dealer broker registered with the SEC. MEKAWAY was a Seidel & Co. employee. As an inter-dealer broker, Seidel & Co. acted primarily as an intermediary between institutional broker-dealers trading bonds of various types.
SEC regulations required Seidel & Co. to maintain net capital reserves of the greater of $100,000 or six and two-thirds percent of its aggregate indebtedness. If Seidel & Co.’s net capital fell below the required threshold, the Firm was required to notify the SEC of that fact the same day. Once a broker-dealer falls out of its net capital requirement, it becomes subject to the suspension or revocation of its registration.
In order to ensure, among other things, that a broker-dealer maintains adequate net capital, SEC regulations require broker-dealers like Seidel & Co. to maintain books and records reflecting each expense incurred relating to their business and any corresponding liability. Seidel & Co. was also required to file monthly reports with the SEC summarizing information concerning its financial and operational status, including its current net capital position.
Beginning at least in or about late-2016, SEIDEL and MEKAWAY caused Seidel & Co. to maintain inaccurate books and records regarding its net capital position and to submit false reports to the SEC regarding Seidel & Co.’s net capital position. In particular, in monthly reports filed with the SEC reflecting Seidel & Co.’s financial position for the months of October 2016 and November 2016, SEIDEL and MEKAWAY caused Seidel & Co. to falsely represent that it had the requisite net capital to meet its regulatory requirements for those months. In fact, as SEIDEL and MEKAWAY well knew, the net capital of Seidel & Co. fell far below the requisite amount in both months. Specifically, in its filings for month-end October 2016, Seidel & Co. fraudulently represented that its net capital exceeded the minimum amount by: (i) failing to account for a debt of approximately $104,000 that the firm owed to its landlord, and (ii) falsely inflating the balance of a Firm brokerage account, for which MEKAWAY submitted a forged bank statement to the external financial operations entity the Firm engaged to prepare and submit reports to the SEC. Subsequently, in order to falsely represent that Seidel & Co. met its capital requirements in its filing for November 2016, Seidel & Co. falsely recorded as a capital contribution a $1 million loan that should have been recorded as a liability.
When, in December 2016, the SEC began to examine Seidel & Co.’s true net capital position, SEIDEL made false statements to the SEC’s exam staff regarding the $1 million loan. SEIDEL initially claimed on multiple occasions that the loan was a capital investment. When the SEC sought verification of this assertion, SEIDEL acknowledged that the money was in fact a loan but claimed, falsely, that he believed it might be converted to a capital investment.
Subsequently, in or about August 2018, MEKAWAY sought to obstruct an investigation by the SEC’s Division of Enforcement into the misconduct at Seidel & Co. by failing to produce relevant documents and emails in response to a subpoena for records and falsely denying that he was in possession of Seidel & Co. records.
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ALAN SEIDEL, 73, of Long Beach, New York, and BENJAMIN MEKAWAY, 37, of Hazlet, New Jersey, were charged in the Complaint with one count of conspiracy, one count of falsifying required books and records of a broker-dealer, and one count of falsifying records in a federal investigation. SEIDEL and MEKWAWY are also each charged with one count of making false statements to the SEC. The conspiracy charge and the false statements charges each carry a maximum prison term of five years. The falsification of records charges each carry a maximum prison term of 20 years.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the judge.
Mr. Berman praised the work of the investigative work of USPIS. Mr. Berman also thanked the SEC, which brought a separate civil action.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Scott Hartman is in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.
 As the introductory phrase signifies, the entirety of the text of the Complaint and the descriptions of the Complaint constitute only allegations, and every fact described should be treated as an allegation.