Day Trader Used Bitcoin to Hide Earnings from the SEC

This is a story about how the SEC is following the use of bitcoin among day traders closely. A 42-year-old day trader named Joseph P. Willner caught charges relating to illegal broker account usage and market manipulation through a scheme involving Bitcoin and private messaging applications. According to a Securities and Exchange Commission press release, Willner and an accomplice collected more than $700,000 through their “after hours” scheme. Willner’s partner had access to more than 100 brokerage accounts belonging to unsuspecting victims. With the lower trading volume that accompanies after-hours trading, the duo used the stolen or hacked brokerage accounts to make unauthorized trades in bulk. This artificially affected the stock prices of companies that benefited Willner.

“Legal trading too hard,” the SEC investigators reportedly saw in Wilner’s private chats with at least one co-conspirator. Despite his best efforts to mask his online identity, he could not stay ahead of SEC investigators. In order to split the profits earned through the scheme, Willner “transferred proceeds of profitable trades to a digital currency company that converts U.S. dollars to Bitcoin and then transmitted the bitcoins as payment,” the filing said.

According to the Criminal Complaint, the suspects executed the fraudulent trades in the following fashion:

Individual A secretly accessed a victim’s brokerage account and entered buy orders. In this case, 49,000 shares of Auris Medical Holding AG (EARS) at artificially high prices. ($3.99 per share.)

Willner placed a buy order to cover his short. He purchased 9,000 shares of EARS at $3.20/each.

Individual A secretly accessed the same victim’s brokerage account and placed a sell order of 9,000 shares at the same price.

The buy orders executed against the sell orders.

The defendants collected $6,201 from trading EARS as described above. In many examples, they made more than $6,000 per run. And they had access to 110 accounts to exploit.

The Criminal Complaint alleges that the 42-year-old suspect had approached the primary co-defendant in 2014. On September 22, 2014, Willner approached “Individual A” and asked if they could discuss the scheme in a more private setting. Willner sent more messages in the following days, asking if Individual A would be trading during the day or waiting until after hours. He explained that he could “meet on chat to do some trades.” Neither the press release nor the Criminal Complaint (.gov PDF) revealed the messaging system Willner had attempted to hide behind.

His attempts at being stealth made little difference in the end. Regardless of the criminal mastermind aura associated with illegally earning more than $700,000 within two years, the SEC pointed out just how awful Willner had masked his identity. He received a couple of bonus points for using Bitcoin to mask the money trail. Bitcoin lacks anonymity, but using PayPal or personal checks would have been a far worse decision. Willner gets another point for communicating under various pseudonyms to avoid using a personally identifiable handle, such as his name.

One of the biggest flaws, other than messing with the SEC, was accessing the chat application from the clearnet, and on his home internet. The majority of the evidence compiled against the trader came from the conversations that Willner had undeniably sent and received from a device at his house.

Willner’s actions resulted in charges filed by the U.S. Attorney’s Office for the Eastern District of New York and the DoJ’s Fraud Division.