BK Bank of New York Mellon Corporation

By Katy Stech 

A judge has ruled that Rochdale Securities LLC, a Connecticut trading firm that shut down after a loss from a $1 billion Apple Inc. stock purchase executed by a rogue trader, can collect nearly $8 million in damages from Wall Street firm Pershing LLC, which it accused of mishandling the firm's fatal trade.

In a recent ruling, a New York state-court judge agreed with the damages award against Pershing, which executed the unauthorized trade in Apple stock in October 2012 that left Rochdale Securities with a loss of several million dollars.

In earlier court papers, Rochdale Securities argued that Pershing, a unit of the Bank of New York Mellon Corp. that administered more than $1 trillion in assets as of June, had the power to reverse the massive trade, knowing it was a mistake and that Rochdale Securities didn't have the money to pay for the purchase.

Pershing denied wrongdoing and asserted in court papers that it didn't have the power to undo Rochdale Securities' trade.

A Pershing representative didn't respond to requests for comment on the damages award.

Rochdale Securities stopped trading the day after the fraudulent Apple stock purchase and later filed for bankruptcy. The Stamford, Conn., firm, which employed 60 brokers and analysts at the time of the shutdown, operated as a licensed broker-dealer for more than 35 years.

The downfall of Rochdale Securities began with a stock purchasing scheme executed by trader David Miller and a customer at the time that Apple released its quarterly earnings on Oct. 25, 2012.

Under the scheme, Mr. Miller agreed to submit an order for Apple stock and write it in a way that Mr. Miller could later claim he misinterpreted it, according to officials from the Federal Bureau of Investigation who investigated the trade and later prosecuted him. Mr. Miller then made a trade for 1,000 times the number of shares, FBI officials said.

If Apple shares rose after the release and the trade provided profitable, Mr. Miller and the customer would share the profits, FBI officials said. If the trade lost money, Mr. Miller "would claim human error, leaving Rochdale holding the losing position," according to FBI officials.

In 2013, Mr. Miller was sentenced to 30 months in prison for his role in the scheme.

Rochdale Securities who realized Mr. Miller's giant purchase began selling off the Apple stock the next morning. They made a small profit, but the price dropped by about $9 dollars per share several hours later.

Despite the dip, Pershing officials pressured Rochdale Securities to sell the rest of the stock immediately.

The sudden sale left Rochdale Securities on the hook for a big loss: $5,314,967.

Waiting several hours until the price rebounded, Rochdale Securities lawyers argued, would have enabled the firm to avoid that loss.

"Pershing didn't start the series of events [that led to Rochdale Securities' shutdown], but Pershing did end" them, said Aaron Romney, a Connecticut lawyer who represents Rochdale Securities.

Rochdale Securities also argued that Pershing was reckless by clearing the Apple trades and knew that doing so could put the firm out of business. Court papers included an email from a Bank of New York Mellon managing director who called Rochdale Securities' Apple trade a "hilarious screw up" that came from "a guy who otherwise would have had a massive X-mas bonus."

In April 2014, Rochdale Securities lawyers filed an arbitration claim with a Financial Industry Regulatory Authority panel, asserting damages for the loss of business and several other claims. The panel later ruled in Rochdale Securities' favor, awarding $7.6 million.

On Sept. 23, New York judge Saliann Scarpulla denied Pershing's request to reconsider the arbitration award. Part of the damages award will pay the firm's final bills as part of the bankruptcy process.

Write to Katy Stech at katherine.stech@wsj.com

(END) Dow Jones Newswires

October 04, 2016 16:37 ET (20:37 GMT)

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