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Jury Verdict Against Margin Borrower in SEC Fraud Action

Published Mar 01, 2017

On February 22, 2017, a federal court jury in Miami, Florida, returned a verdict against Christopher J. Hall, the former chairman of a public company that operated a horse racetrack, finding him liable for violating the antifraud provisions of the federal securities laws.

The SEC's complaint, filed on September 17, 2015, alleged that, from 1999 through 2008, Hall obtained tens of millions of dollars in margin loans from brokerage firm Penson Financial Services, Inc., mainly to purchase municipal bonds and to fund the racetrack's operating expenses. When the collateral underlying Hall's margin loans plummeted in value in the wake of the financial crisis, Hall pledged additional collateral to support his margin debt. Hall repeatedly lied to Penson about liens on his additional collateral while obtaining fraudulently over $5.5 million in additional loans and other payments from the firm.

Following a seven-day trial, the jury found Hall liable for violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933.

The court will determine remedies against Hall at a later date. The SEC's complaint seeks disgorgement of ill-gotten gains plus interest, penalties, an officer-and-director bar, and a permanent injunction.

 

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