Trader's "Free-Riding" Scheme: $22.4 Million in Trades with Empty Pockets!

SEC v. Cyrus P. Naderi — U.S. Securities and Exchange Commission Litigation Release No. 26418, dated November 18, 2025.

The SEC charged Cyrus P. Naderi with orchestrating a fraudulent "free-riding" scheme. Naderi allegedly deposited over $565,000 into brokerage accounts using bank accounts he knew were insufficient to cover the amounts. He then traded stocks using the instant credit provided by broker-dealers before the deposits were reversed, causing losses to three firms.

In Plain English

Imagine you want to buy something expensive, but you don't have enough money in your bank account. You try to trick the store into letting you take the item by writing a check you know will bounce. You hope to sell the item quickly and pay for it before the store realizes the check bounced. In this case, a trader did something similar with stocks, using fake money to buy and sell them, hoping to profit before the banks caught on.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Setting Up Brokerage Accounts From April 2021 to March 2024, Cyrus P. Naderi opened accounts at four different brokerage firms. He planned to use these accounts to buy and sell stocks.
2. Making Unfunded Deposits Naderi deposited money into these brokerage accounts, initiating transactions totaling at least $565,000. He knew that the bank accounts he was drawing from did not have enough money to cover these deposits.
3. Exploiting Instant Credit The broker-dealers, unaware that the deposits were unfunded, extended instant deposit credit. This allowed Naderi to immediately use the funds to trade securities.
4. Buying and Selling Stocks Using the credit, Naderi executed hundreds of trades, buying and selling stocks. The total value of these trades exceeded $22.4 million.
5. Deposits Reversed Eventually, the broker-dealers discovered the insufficient funds, and the deposits were reversed. In some cases, Naderi himself placed stop-payment orders on the transfers from his bank accounts.
6. Causing Losses As a result of the reversed deposits, three of the broker-dealers incurred an aggregate loss of at least $65,770. The trades were cancelled, preventing Naderi from profiting from the scheme.

The Enforcement Action

On October 7, 2025, the SEC obtained a final judgment against Cyrus P. Naderi for conducting a fraudulent "free-riding" scheme. Naderi, without admitting or denying the allegations, consented to a final judgment permanently enjoining him from violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The judgment includes conduct-based injunctions and a $40,000 civil penalty.

Named in this action: Cyrus P. Naderi.

Original SEC litigation release ↗ · Browse all cases