Opinion for the Court filed by Circuit Judge GARLAND.
Shаron Graham and Stephen Voss petition for review of an order of the Securities and Exchange Commission (SEC) sanctioning them for conduct relating to trades executed for their customer, John Broumas. The Commission found that Graham, a registered representative with Voss’ brokerage firm, violated section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by aiding and abetting Broumas in the fraudulent trading of stock. The Commission further concluded that Voss had failed reasonably to supervise Graham with a view to preventing the securities violations. Graham challenges the Commission’s findings on several grounds; Voss’ challenge depends solely upon the exoneration of Graham. Because we conclude that the Commission’s decision was reasonable and supported by substantial evidence, we deny the petition for review and affirm the SEC’s order.
*996 I
Voss is the owner and president of an independent discount brokerage firm, Voss & Co., Inc. (VCI), located in Springfield, Virginia. Graham began working in the securities industry in 1982 and joined VCI in September of 1984. She was a registered representative, 1 as well as VCI’s cashier and back office assistant. She was also VCI’s primary “house” broker, handling house accounts on a noncommission basis as well as some 250 of her own accounts for commissions. See J.A. at 371-72. 2 Graham spent the bulk of her time performing cashiering and back office duties. In February of 1990, she received her principal’s license. 3 Graham’s immediate supervisor, James Pasztor, was VCI’s vice-president, general manager, and SEC compliance officer.
One of the firm’s house accounts was a joint account in the names of John Brou-mas and his wife, Ruth. Broumas’ troubles began when the stock market crashed in 1987. To cover his losses, he borrowed heavily and by May 1989 owed roughly $2 million in personal loans and $1 million in mortgages.
See id.
at 180-85. Unable to borrow any more from banks, Broumas launсhed upon a scheme that the SEC described as “similar to check-kiting.”
Sharon M. Graham,
Release No. 34-40727,
Broumas held a substantial number of shares in the Class A common stock of James Madison, Ltd. (JML), a holding company for a family of banks with which he was affiliated. Although JML stock was listed on the American Stock Exchange (AMEX), Broumas undertook a series of trades in the over-the-counter market. Broumas arranged wash trades and matched orders 5 of JML stock among accounts in his own name and in the name of nominees whose accounts he controlled. Broumas directed these trades among at least 25 different brokerage accounts he controlled at 14 different broker-dealers.
In each case, he would instruct one broker to buy and another to sell a specified number of shares at a specified price, thus moving the stock from one of his (or his controlled) accounts to another. See J.A. at 211. Neither broker was told by Brou-mas that the other accоunt also belonged to or was controlled by him.
Broumas’ stock was held in margin accounts.
6
Under the rules ' applicable to
*997
those accounts, Broumas could obtain the proceeds from a sale one day after the transaction was completed, but could wait at least five business days until the settlement date to pay for the corresponding purchase.
See Graham,
As Broumas’ financial situation continued to deteriorate, “many of the broker-dealers with which he dealt ... bec[ame] increasingly reluctant to extend him credit.”
Graham,
Seventy-six of the directed trades were conducted by VCI, and approximately 60 of those — an average of one every week- and-a-half — were executed by Graham. At the beginning of 1989, Broumas’ joint account at VCI held 37,500 shares of JML stock. From January 23, 1989 through May 24, 1990, Broumas instructed VCI to exchange a total of 644,800 shares. Although Broumas’ account was a “house” account, a rapport soon developed between Broumas and Graham and he began to ask for her specifically. Generally, Broumas would give Graham a specific number of shares to trade, a particular limit price, the name of the firm (“contra-broker”) that would execute the other side of the trade, and the nаme of the broker he wanted her to contact at that firm. After consulting the AMEX listing to verify that the order price was within the listed bid and offer prices, Graham would complete the trade. Broumas usually asked VCI to issue a check for the proceeds the day after the sale. See id. at *3.
Graham observed that Broumas “had a peculiar way of trading.” J.A. at 306. Of the 100 house accounts she handled during this time, only Broumas directed trades, and only Broumas traded in such large quantities. See id. at 285. Because Brou-mas always identified the specific contact persons to call at the contra-brokers, Graham came to believe that Broumas controlled the shares in the accounts or at least “had connections” with them, id. at 382, although Broumas never told her so and she “never asked him,” id. at 286-87. Finally, from her work as the firm’s cashier, Graham noticed that Broumas “never seemed to ... make any money on his trades.” Id. at 380, 383. Eventually, Graham asked Broumas directly why he traded in such a strange manner, and Broumas answered that “he owed bank notes or bank loans and that for him to sell the stock was an easier way for him to get the money to pay those loans, as opposed to having to go to other means.” Id. at 356-57; see also id. at 308. 8
Due to Broumas’ suspicious manner of trading, Graham undertook special precau *998 tions to protect her firm’s financial interests. She knew that Broumas had financial problems, that he had bounced checks, and that he often owed money on his joint account. See id. at 288, 317, 343. As a consequence, she feared that “Broumas’ orders presented a financial risk to the firm.” Graham Br. at 14 (citing J.A. at 317). Graham discussed Broumas’ “peculiar way of trading” with her supervisor, James Pasztor, and, as a safeguard, generally sought his prior approval for Broumas’ trades — something she rarely did with respect to her other house accounts. J.A. at 283-85, 316-17.
By early 1989, Broumas was having difficulty making timely payment for trades thrоugh his VCI joint account. Although he had five business days to pay for a purchase, both Graham and Voss knew that VCI’s clearing firm,
9
U.S. Clearing Corp., had been required to obtain “quite a few” extensions of time.
Graham,
Thereafter, Broumas called Voss and asked to open a second account, entitled “Les Girls,” purportedly for a partnership between Broumas’ wife and daughter. Voss agreed to permit the opening of the new account, аlthough he never spoke to Broumas’ wife or daughter and testified that he “suspected” Broumas would be advising on the trading. J.A. at 564. Graham completed the form to open the “Les Girls” account, although she had never spoken to Broumas’ wife or daughter either. Graham conceded that she regarded the account as belonging to Broumas, and that she knew he placed all the trades. Although she believed Broumas had opened the Les Girls account to prevent the restricted joint account “from being closed out or his position sold out,” id. at 295-96, Graham nonetheless continued to place directed trades for him. Broumas directed 40 JML stock trades through the Les Girls account; between March 21 and August 29, 1989, all of Broumas’ VCI trades in JML stock were effected through that account.
In February of 1990, Broumas began directing trades in JML stock through yet another VCI account. These trades were made through an already existing house account maintained by his friend and attorney, Lawton Rogers. Broumas called Graham to direct trades through the Rogers account; Graham would then call Rogers to confirm them. Graham told Pasztor about the directed trades, who in turn told Voss. Voss said he “didn’t have a problem” with the trades because Broumas and Rogers were “bosom buddies.” Id. at 429.
At the beginning of April 1990, a check Broumas had given VCI to pay for the purchase of JML shares was returned for insufficient funds. Pasztor again restricted the joint account and told Graham that Broumas could not trade without cleared funds. Initially, Voss concurred. At the end of April, however, Broumas invited Voss to lunch. Following the lunch, Voss told Pasztor that Broumas could continue to trade. Pasztor in turn informed Graham. See
Graham,
Eventually, Broumas became unable to satisfy his margin calls and failed to pay for his last trade through VCI. Although *999 the firm liquidated Broumas’ account, it suffered a loss of over $60,000. See id. Broumas filed for personal bankruptcy in early 1991. See id. at *2 n. 3.
On September 27, 1991, the SEC filed a complаint in district court alleging that, from January of 1989 through July of 1990, Broumas violated the securities laws by executing wash trades in JML stock.
See SEC v. John G. Broumas,
Civ.A. No. 91-2449 (D.D.C.). Without admitting or denying the allegations, Broumas consented to the entry of a permanent injunction against future violations. Subsequently, Broumas pled guilty to utilizing a check-kiting scheme to meet margin calls.
See United States v. Broumas,
On September 30, 1994, the SEC issued an administrative complaint against Graham, Voss, and Pasztor in connection with Broumas’ trades from January 1989 through May 1990. Graham was charged with willfully aiding and abetting Broumas’ violations of two sections of the Securities Exchange Act of 1934: section 9(a)(1), which prohibits the effectuation of wash trades or matched orders
[f]or the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security,
15 U.S.C. § 78i(a)(l), and sеction 10(b) (and Rule 10b-5 thereunder), which makes it unlawful
[t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange ... any manipulative or deceptive device or contrivance ...,
id.
§ 78j(b). Pasztor and Voss were charged with violating section 15(b)(4)(E) for failing reasonably to supervise Graham “with a view to preventing” the violations.
Id.
§ 78o(b)(4)(E). The charges against Pasztor were severed from those against Voss and Graham. The SEC subsequently found Pasztor liable for failure to supervise and sanctioned him with a three-month suspension.
See James J. Pasztor,
Release No.34-42008,
The charges against Graham and Voss were heard before an Administrative Law Judge (ALJ), who found Graham and Voss liable on all charges, suspended them from association with any broker or dealer for two and three months, respectively, and ordered Graham to cease and desist from future violations. See
Sharon M. Graham,
Release No. 34-82,
II
The securities laws provide for judicial review of SEC disciplinary proceedings in the courts of appeals.
See
15 U.S.C. § 78y(a)(l). The Commission’s findings of fact, “if supported by substantial evidence, are conclusive.”
Id.
§ 78y(a)(4);
see Steadman v. SEC,
Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful to use deceptive devices in connection with the purchase or sale of securities. See 15 U.S.C. § 78j(b). Rule 10b-5, promulgated pursuant to section 10(b), specifically provides that it is unlawful for any person, in connection with the purchase or sale of any security:
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made ... not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
17 C.F.R. § 240.10b-5. Althоugh variously formulated, three principal elements are required to establish liability for aiding and abetting a violation of section 10(b) and Rule 10b-5: (1) that a principal committed a primary violation; (2) that the aider and abettor provided substantial assistance to the primary violator; and (3) that the aider and abettor had the necessary “scienter” — i.e., that she rendered such assistance knowingly or recklessly.
See SEC v. Fehn,
Graham contests all three of these elements: She contends that Broumas’ conduct did not constitute a violation of section 10(b) or Rule 10b-5, that she did not substantially assist such a violation, and that she did not do so knowingly or recklessly. Graham and Voss further argue that the SEC is estopped from sanctioning them because the SEC and National Association of Securities Dealers (NASD) observed Broumas’ trading and failed to alert petitioners to it or identify it as a securities violation. Finally, Voss argues that because Graham is not guilty of аiding and abetting, he cannot be guilty of failing reasonably to supervise her. We consider these arguments below.
A
The SEC based its conclusion that Broumas’ trades constituted a fraud under section 10(b) and Rule 10b-5 on two independent theories. First, it concluded that the trades constituted a fraud on the market for JML stock by creating a deceptive appearance of market activity. Second, it concluded that Broumas defrauded the broker-dealers through which he traded by causing them to remit sales proceeds to him that they would not have paid had they known the true nature of the transactions. Although Graham challenges the validity of the first theory, 10 we need not resolve that dispute because Broumas’ trades clearly constitute violations under the second.
As the SEC explained, Broumas, unable to obtain further loans from banks, arranged wash trades and matched orders “for the purpose of obtaining a float in a scheme similar to check-kiting.”
Graham,
As we have noted, although Broumas received payment for the sale immediately, he did not have to make payment for the “purchase” of the same shares until five days later. Were he unable to make that payment — an eventuality his uncertain financial condition rendered likely and which ultimately occurred — the selling broker (or the purchаsing broker, if it had paid over the funds to the selling broker and received the stock) would be forced to cover the loss by selling the JML shares. But there was no guarantee that those shares would cover the amount advanced to Broumas by the broker — either because the stock was no longer worth the price Broumas himself had offered a week earlier, 14 or because it had never been worth that amount in the first place. 15 Indeed, something like this happened to VCI, which suffered a $60,000 loss when forced to liquidate Broumas’ account after he failed to pay for his last transaction. 16
Graham contends that Broumas’ scheme cannot violate section 10(b) because fraud on a broker is not fraud “in connection with the purchase or sale of [a] *1002 security,” as required by the statutory language. 15 U.S.C. § 78j(b). To constitute a violation of section 10(b), Graham maintains, “the fraud must have been perpetrated upon an actuаl or potential investor.” Graham Br. at 27. As the brokers were never parties to the securities transactions, but merely executed them, Graham contends that no violation of section 10(b) was possible.
Graham’s argument is foreclosed by the Supreme Court’s unanimous decision in
United States v. Naftalin,
The Court rejected the argument. It held that the statutory phrase, “in the offer or sale of any securities,” was intended to be “define[d] broadly,” and is “expansive enough to encompass the entire selling process, including the seller/agent transaction.”
Id.
at 773,,
Turning to the statutory purpose,
Nafta-lin
emphasized that “neither this Court nor Congress has ever suggested that investor protection was the
sole
purpose of the Securities Act.”
Id.
at 775,
Although
Naftalin
involved section 17(a)(1) of the Securities Act, rather than section 10(b) of the Securities Exchange Act, the relevant language is virtually identical.
Compare
15 U.S.C. § 77q(a)(l) (“in the offer or sale of any securities”),
with id.
§ 78j(b) (“in connection with the purchase or sale of any security”). Indeed, the Court recognized an argument that section 17(a)(1) might be
narrower
than section 10(b), but held that “even if ‘in’ were meant to connote a narrower group of transactions than ‘in connection with,’ ” it would still cover fraud against brokers.
Naftalin,
Graham also contends that there cannot have been an actionable fraud in this case because the SEC charged owners and brokers at the contra-firms with securities violations like those of petitioners. “Clearly,” Graham declares, “Broumas’ alleged aiders and abettors cannot also be his defrauded victims.” Graham Br. at 26. This argument, too, is of no avail.
First, even assuming that such a defense were valid, the SEC did not charge all of the contra-brokers with securities violations.
18
Second, this purported defense has no application to the clearing firms— none of which played any role in Broumas’ scheme and one of which expressly tried to restrict it. Broumas, assisted by Graham and Voss, established and traded through the Les Girls and Rogers accounts specifically to avoid those restrictions, thus deceiving the clearing firm into making the advances necessary to execute his transactions.
See Graham,
Finally, whatever the involvement of the brokers or owners, fraud on their corporate institutions is an independent matter.
20
As the Supreme Court recognized in
Naftalin,
fraud on brokerage firms affects more than the health of those firms alone.
See Naftalin,
*1004 B
Having concluded that Broumas’ stock-kiting scheme constituted a primary-violation of the securities laws, the next question is whether Graham substantially assisted Broumas in that violation. We have no doubt that she did. Graham placed 60 directed trades for Broumas, an average of one every week-and-a-half during the 18-month period at issue. She opened the Les Girls account and executed wash trades from both that account and from the account of Lawton Rogers. Such conduct is more than sufficient to constitute substantial assistance. See SEC v. U.S. Envtl, Inc., 155 F.3d 107, 112 (2d Cir.1998) (holding trader who recklessly executed manipulative buy and sell orders for customer liable as primary violator).
Graham contends that this conclusion is inconsistent with our decision in
Zoelsch v. Arthur Andersen & Co.,
Graham further contends that she may not be regarded as substantially assisting Broumas since the execution of his trades was merely a “ministerial” act on her part. She had
“no
discretion” with respect to the handling of Broumas’ accоunts, she asserts, because “once Mr. Pasztor approved a trade, [she]
could not
refuse to execute it.”
Id.
at 14. But Graham did have discretion. A registered representative can always refuse to execute a trade she knows may constitute a securities violation.
Cf. U.S. Envtl.,
C
The real question here concerns the third element of aiding and abetting liability: did Graham assist Broumas with the requisite scienter? We have held that knowledge or recklessness is sufficient to satisfy that requirement.
See Kowal v. MCI Communications Corp.,
The SEC did not hold Graham reckless merely for executing stock trades. Rather, during the course of executing some 60 trades, Graham noticed numerous suspicious circumstances. She observed that Broumas invariably specified the contra-broker for his trades, rather than using American Securities, the firm VCI typically contacted for over-the-counter trades in exchange-listed securities. Out of the more than 300 accounts with which Graham worked, only Broumas specified the contra-broker with whom to execute the trade, and only Broumas traded in such large volumes. He also detailed every as
*1005
pect of the trade, including the specific employee at the contra-broker with whom he wanted Graham to speak.
Cf. United States v. Corr,
Perhaps most important, Graham recognized, and discussed with Pasztor, the fact that Broumas had “a peculiar way of trading.” J.A. at 806. Although these were “big money trades” involving thousands of shares, and although- he was repeatedly buying and selling and paying commissions on the transactions, Graham realized that Broumas was not making any money on the trades.
See id.
at 380. This economically irrational trading was a large red flag.
See Edward J. Mawod & Co. v. SEC,
At the same time that she was noting these trading peculiarities, Graham also knew that Broumas was experiencing financial difficulties. She learned that he was buying and selling JML stock as a method of borrowing money he needed to repay bank loans. She knew that he was having trouble paying for his trades on time, had rеceived “quite a few” extensions on his joint account, and had bounced checks. J.A. at 288, 296, 343. She knew that VCPs clearing firm had imposed restrictions on his joint account. And she knew that, with her help, Broumas was circumventing those restrictions by trading in accounts nominally owned by others. Moreover, when it came to her own firm’s financial interests, Graham took special precautions to protect against financial loss, seeking Pasztor’s authorization on almost every trade because “I couldn’t take a chance of writing an order when the man would owe thousands of dollars in his account.” Id. at 317. All of this provides more than the “substantial evidence” necessary to support the SEC’s finding of scienter on the part of Graham.
In her defense, Graham notes that she “stood to gain absolutely nothing from Broumas’ scheme,” since Broumas traded through a “house account” for which she did not receive commissions. Graham Br. at 27. It is true that lack оf opportunity for personal gain may suggest lack of motive, which may in turn be relevant to the question of scienter. But the absence of commissions does not necessarily negate either motive or scienter. Graham may have gone along with Broumas’ scheme (or hidden her head in the sand) to please her bosses or to keep her job. Or she may have done so merely because she was reckless, regardless of any motive to gain money or favor. Either way, the absence of commissions does not absolve her of responsibility.
See U.S. Envtl.,
Graham also points to the fact that she sought and obtained approval for Broumas’ trades from her immediate supervisor, James Pasztor, who told her they were “fine.” She “left it up to my supervisor,” she states, to “say that this was not allowed.” J.A. at 338. And she argues that this reliance negates the scienter necessary for an aiding and abetting violation. In support, Graham cites James L. Ows-ley, a case in which the Commission excused the conduct of a broker who, prior to selling his own stock in a company, was told by a firm official with whom he consulted that it was not necessary to disclose those sales to customers he was asking to purchase the same stock at the same time. See 51 S.E.C. 524, 528 (1993).
The SEC rejected Graham’s reliance defense, noting that she is an experienced professional who has an independent duty to use diligence “where there are any unusual factors.”
Graham,
The Commission distinguished the
Ows-ley
decision on the ground that, “[a]mong other things, ... [it] involved a single, discrete inquiry and limited transactions.”
Graham,
Graham’s reliance on Pasztor, a VCI employee, also differs substantially from the reliance at issue in
SEC v. Steadman,
where we held that directors of a mutual fund company had not been reckless in relying on a “formal, unqualified opinion letter” from their outside counsel — an opinion also relied upon by the funds’ “disinterested independent auditor,” a major national accounting firm.
Graham, by contrast, was not simply a professional who should have known better. She was a professional who was aware of her customer’s financial difficulties, aware that he was trading in a suspicious and economically irrational manner, and aware that he was trying to circumvent restrictions that had been placed on his account — yet she assisted him nonetheless.
Cf. Wonsover,
D
Finally, Graham and Voss argue that the SEC is barred by principles of “equitable estoppel” and “administrative interpretation” from sanctioning them. They note that, “[f]rom late 1988 through mid-1989, the NASD had several occasions to review Broumas’ directed trading in JML shares.” Graham Br. at 33. The NASD concluded, petitioners assert, “that so long as Brou-mas’ trades were not reported to the consolidated transaction reporting system of the exchanges, they were not manipulative.” Id. 23 They also claim that “[t]he NASD sought the SEC’s view with respect *1007 to this administrative interpretation and the SEC concurred.” Id. And they further contend that during 1988 and 1989, the SEC conducted its own examination of Broumas’ trading, and “did not perceive” securities violations. Id. at 34.
At the start, it is important to describe accurately what transpired during the examinations in question. First, the NASD did not give Broumas’ trades anything like a clean bill .of health, and certainly did not do so in the form of an “administrative interpretation.” An examiner simply concluded, in an internal review, that because Broumas’ trades were not being included in the consolidated transaction reporting system, see supra note 23, they did not violate an NASD rule that proscribes wash trades undertaken for the purpose of creating the false appearance of market activity, see NASD Manual, Sched. G, § 4(b) (1989). The examiner was nonetheless troubled by the trades “because they didn’t smell right. There was something fishy about these trades being prearranged, directed trades.... ” J.A. at 610; see also id. at 616-17. The NASD referred the matter of Broumas’ trading to the SEC for further investigation. See id. at 608, 618, 804.
The SEC’s role was even less formalized, and is of even less comfort to petitioners. The support petitioners cite for the proposition that “[t]he NASD sought the SEC’s view with respect to this administrative interрretation and the SEC concurred” is no more than the NASD examiner’s testimony that he spoke to someone at the SEC — whose name and title he could not recall — who “basically agreed” with his evaluation. Id. at 610, 611. The support for petitioners’ contention that the SEC “did not perceive” securities violations in reviewing Broumas’ trading is the testimony of an SEC examiner, who said that after reviewing the NASD examination, he decided that “no conclusion could be reached as to whether any violative activities have occurred.” Id. at 802. The SEC examiner therefore recommended that a “further review of Mr. Broumas’s activities should be conducted in order to determine if insider trading or a check kiting scheme was being perpetrated.” Id. at 803; see also id. at 659. Further review by the SEC eventually did result in the complaints at issue here.
Even in circumstances where the doctrine of estoppel is applicable,
24
the following elements, at least, must be еstablished: that there was a “definite” representation to the party claiming estoppel; that the latter “relied on its adversary’s conduct in such a manner as to change his position for the worse”; and that the reliance was “reasonable.”
Heckler v. Community Health Servs.,
*1008 Instead, what we have in this ease is nothing more than a series of investigations into Broumas’ trades, which ultimately provided the SEC with sufficient understanding of the underlying scheme to file the complaint now before us. Neither Broumas nor the petitioners can be said to have been cleared along the way. And the SEC’s failure to prosecute at an earlier stage does not estop the agency from proceeding once it finally accumulated sufficient evidence to do so. 26
Ill
We conclude that substantial evidence supports the SEC’s determination that Graham aided and abetted Broumas’ violations of section 10(b) and Rule 10b-5. Because Voss’ defense rested solely upon the exoneration of Graham, we also uphold the SEC’s determination that he failed reasonably to supervise her. The order of the SEC is
Affirmed.
Notes
. A representative is a person associated with a National Association of Securities Dealers (NASD) member firm who is engaged in supervision, solicitation, or conduct of securities business. The NASD requires that representatives of member firms register with the Association and pass a qualifying exam. See 6 Louis Loss & Joel Seligman, Securities Regulation 2809-11 & n.42 (3d ed. 1990).
. At VCI, house accounts were not assigned to any particular broker. Commissions on trades in these accounts were paid to the firm rather than to the brokers executing the trades.
. A principal is a person who is “actively engaged in the management of the [NASD] member's ... securities business.”
Markowski
v.
SEC,
. For a description of the mechanics of a check-kiting scheme, see
Williams v. United States,
. “Wash trades,” also called "wash sales,” are "transactions involving no change in beneficial ownership.”
Ernst & Ernst v. Hochfelder,
.In a margin account:
the broker lends the customer money to allow him to purchase securities. The customer advances only a portion of the purchаse price and pays interest on the bal- *997 anee. The broker maintains the securities purchased as collateral. If the value of the securities declines, the broker may seek more collateral for the protection of his "loan.”
Liang v. Dean Witter & Co.,
. Broumas testified that the proceeds available to him during the settlement period allowed him to "take care of my bank notes or whatever was pressing me that day and then worry about how I was going to handle the purchase price and the amount of the purchase price a week later.” J.A. at 209.
. At trial, Broumas claimed that he sold the shares to himself, rather than to a buyer on the open market, because he "wanted to maintain [his] position [in JML] at that price.” J.A. at 212.
. A clearing broker performs "back office services such as clearing stock, handling customer funds, holding customer securities, dealing with transfer agents, and matching of trades with the exchanges аnd market makers" for firms that do not have the capacity to perform these functions. SEC Br. at 18 n.17;
see, e.g., United States v. Russo,
. Graham disputes that Broumas' trades constituted a fraud on the market. She argues, inter alia, that Broumas’ trades were not material because they constituted a small percentage of the total volume of outstanding JML shares. The SEC counters that the trades nonetheless made up a substantial proportion of the daily volume of trades on the days they were reported.
. Broumas acknowledged that he began wash trading because he "didn’t have the credit” to meet his existing obligations, J.A. at 174, and couldn't borrow money from a bank because he had "reached Dais] limit,” id. at 213. He also testified that on many occasions he sold JML stock to himself in order to meet margin calls. See id. at 205.
.
See SEC v. Drysdale Sec. Corp.,
. Broumas testified that he began asking Rogers to allow him to direct trades through his account "[b]ecause I didn't have the credit and my margin calls wouldn’t permit me to trade with those other brokers of mine.” J.A. at 174;
cf. United States v. Sayan,
. The price of JML Class A stock began to decline in February of 1990.
See Graham,
. We note that unlike a plaintiff in a private damages action, the SEC need not prove actual harm.
See Schellenbach v. SEC,
. In her reply brief, Graham contends that Broumas did not defraud the brokers into paying him the proceeds of the JML sales because he was "entitled” to the money. Graham Reply Br. at 8. Graham claims that the funds Broumas received from the "sell side” of the transaction were the sale proceeds of his own stock, and therefore his own money. The selling broker, however, did not pay Broumas out of the actual proceeds of the sale, but rather out of "proceeds” it anticipated would be paid five days later. Unbeknownst to the broker, that payment would have to come frоm Broumas himself, and, if Broumas were unable to pay, the selling broker’s recourse was against the JML stock— which may well have been insufficient to cover what the broker had paid out. Of course, if the transaction is viewed from the "buy side,” there is even less justification for regarding the money as Broumas’ own, as the purchasing broker extended Broumas credit on margin to purchase the stock from the contra-broker.
. The Court noted that the case would be different if it had been brought by private plaintiffs, because the class of plaintiffs who may bring private actions under Rule 10b-5 is limited to purchasers or sellers.
See Naftalin,
. Broumas' wash trades involved a total of 14 different broker-dealers. The VCI trades involved eight different firms, while the SEC instituted administrative proceedings against four.
See Graham,
. Like the other brokers, the clearing firm was exposed to the risk that funds it advanced might not have been repaid at the time Brou-mas became insolvent. Although the clearing broker might bе able to recover against the introducing firm in the event of nonpayment, it would incur transaction costs in so doing— and there was always the risk that Broumas’ scheme would bankrupt one of the broker-dealers involved.
See Richard D. Chema,
.
Cf. Superintendent of Ins. v. Bankers Life & Cos. Co.,
. The defendant accounting firm had not issued the audit report, but rather had provided information to another accounting firm that had prepared the report.
See Zoelsch,
. Commissioner Johnson dissented from the finding of liability against Graham, solely on the ground that her reliance on the advice of Pasztor and Voss was reasonable.
See Graham,
. NASD rules require that most transactions in stocks listed on the AMEX be reported on the “Consolidated Tape,” NASD Manual, Sched. G, §§ 1(d), 2 (1989), which is the "consolidated transaction reporting system *1007 for the dissemination of last sale reports in [such] securities,” id. § 1(b). Broumas’ trades often were not reported.
.
See Heckler v. Community Health Servs.,
. Of course, even if the NASD had done something to bind itself, that would not have bound the SEC. As a private, nonprofit corporation, the NASD conducts its own independent investigatory and disciplinary actions, and is subject to limited review by the SEC.
See
15 U.S.C. § 78s; 6 Loss & Selig-man.
supra,
at 2819-30. There is "no statutory, regulatory, or historical reference to support [an] argument that NASD discipline of its members was intended to preclude ... disciplinary action by the SEC itself against a securities professional.”
Jones v. SEC,
.
See Investors Research,
In
Klein v. SEC,