Notice of Disciplinary Action Against David N. Rades, Former
Associated Person of Echotrade, LLC, a Former MemberOrganization
To:Members, Member Organizations, Participants and Participant Organizations

From:

John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLXSM

DATE:April 24, 2012FINRA Matter No. 20100219901
Enforcement No. 2011-10
On April 24, 2012, the Business Conduct Committee (the “Committee”) issued a disciplinary
decision against David N. Rades (“Rades”), a former registered representative and off-floor trader
associated with Echotrade, LLC (“Echotrade”), a former member organization of the NASDAQOMX PHLX, LLC (“PHLX” or the “Exchange”). In response to a Statement of Charges issued inthis action, Rades submitted an Offer of Settlement, Stipulation of Facts and Consent toSanctions (“Offer”). Solely to settle this proceeding, and without admitting or denying thecharges, Rades consented to findings that during the period between March 18, 2008 andDecember 2009 (“Relevant Period”), he committed violations of Section 10(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10b-5 promulgated under theExchange Act, and Exchange Rules 707 and 793 by engaging in a fraudulent scheme whereby,
through the use of materially false or misleading statements and omissions, he solicited no fewer
than three investors and obtained approximately $224,000 from investors, including
approximately $15,000 from the investors’ life insurance policies, purportedly for the purpose ofestablishing trading partnerships with the investors to share the profits generated from thepurchase and sale of securities.
The Committee found that during the Relevant Period, Rades approached acquaintances with theidea of providing funding for “leveraged trading partnership[s]” between them and Rades thatwould trade securities and share the profits generated from using unspecified but purportedly
profitable trading strategies developed and employed by successful traders known to Rades. TheCommittee found that Rades made numerous materially false and misleading statements to, andwithheld material information from, investors in order to initiate, conceal and prolong his
fraudulent scheme. Among other things, the Committee found that Rades told investors that hewould utilize trading strategies that had been successfully employed by others known to Rades tomake money in the stock market, and that these individuals had personally invested in, andwould utilize their respective trading strategies to trade on behalf of the trading partnerships
Rades had formed with investors. In reality, none of these individuals had invested in or traded
on behalf of the trading partnerships. Although Echotrade’s policies specifically prohibited Rades
from soliciting funds from third parties or depositing third-party funds into his Echotrade account,
Rades told investors that he would deposit their funds into a separate account at Echotrade andprovide monthly account statements to reflect the partnerships’ trading activities at Echotrade. In
reality, Rades did not deposit investors’ funds directly into his trading account or provide thepromised monthly account statements, but, instead, circumvented Echotrade’s prohibition against
third-party funding by first depositing investors’ funds into his personal bank accounts and thenmoving a portion of the funds into his Echotrade trading account. He then systematicallyconverted investors’ funds to support his personal expenditures. Rades did not disclose toinvestors that: (i) Echotrade restricted third-party account funding and profit sharing; (ii) hewould deposit and had deposited investor funds into his personal account to evade Echotrade’s
third-party funding prohibitions; and (iii) he had misappropriated investor funds for his personal
use and had sustained significant losses in the Echotrade trading account.
The Committee also found that in furtherance of his fraudulent scheme Rades secured copies of
two Metropolitan Life Insurance (“MetLife”) Policy Loan Request forms that were previously
executed by two investors, “whited out” the loan amount and date fields on the documents,
inserted new loan amounts of $7,500 each and new dates, and submitted the altered forms toMetLife to obtain $15,000 in loan proceeds against the investors’ life insurance policies. Rades
also engaged in outside business affiliations with the trading partnerships he had created withinvestors without notifying, or obtaining approval from, Echotrade or the Exchange.
The Committee found that Rades had violated Section 10(b) of the Exchange Act, Rule 10b-5
promulgated thereunder, and Exchange Rule 707 and 793, and ordered the imposition of thefollowing sanctions against Rades: a bar in all capacities from associating with a member ormember organization of the Exchange.
For more information, contact:
John C. Pickford, Enforcement Counsel, NASDAQ OMX PHLX, at +1 215 496 5273

 Copyright 2009 The NASDAQ OMX Group, Inc. All Rights Reserved.

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