The SEC has filed a settled action against North Carolina trader Mayur Baviskar over an alleged free-riding scheme involving nine broker-dealers. Baviskar allegedly initiated $377,200 in deposits that were unfunded or later stopped, used provisional account credit to purchase more than $1.4 million in securities and withdrew $6,078.16 in trading profits before the transfers were reversed. The proposed settlement includes disgorgement, interest, a $50,000 penalty and conduct restrictions.
U.S. Securities and Exchange Commission (SEC)
Official Release:
https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26618
NEWS:
The Securities and Exchange Commission filed a settled civil action against Mayur Baviskar of Morrisville, North Carolina, alleging that he exploited instant deposit credit offered by online brokerage firms. Between March 2019 and September 2024, Baviskar allegedly initiated 72 deposits totaling $377,200 across accounts maintained at nine different broker-dealers. Brokerage platforms may make some or all of an incoming bank transfer available for trading before the transfer has fully cleared through the banking system. This convenience allows customers to enter the market without waiting several business days, but the credit is provisional and depends on the customer's bank actually delivering the promised funds. According to the SEC, Baviskar knowingly initiated transfers from bank accounts that did not contain sufficient money and placed stop-payment instructions on other transfers drawn from an account that did have enough funds. He then allegedly used the provisional buying power to purchase and sell securities before the brokers discovered that the deposits would not settle. The SEC characterized this pattern as fraudulent free-riding because the trades were financed by brokerage credit obtained through representations that supposedly incoming cash would cover the transactions.
The complaint alleges that Baviskar opened the brokerage accounts online and agreed to terms representing that he had sufficient funds and the right to transfer the requested amounts. He then repeated the same general sequence across multiple firms: initiate a bank transfer, receive immediate trading credit, purchase securities, sell the positions and withdraw any resulting profit before the deposit was reversed. The SEC says one linked bank account generally contained no more than approximately $2,500 even when Baviskar initiated much larger transfers from it. A second account sometimes held sufficient funds, but Baviskar allegedly placed stop-payment orders that prevented completion of the transfers. In total, the provisional credits supported more than $1.4 million in securities purchases. Baviskar allegedly withdrew $6,078.16 in trading gains before the broker-dealers identified the failed deposits. The amount withdrawn was relatively small compared with the total trading volume, but the alleged scheme transferred the downside risk to the brokers: if a position lost value before liquidation and the incoming deposit failed, the customer had not supplied the money represented when the trading credit was granted. According to the complaint, the firms would not have extended the instant credit or permitted the trades if they had known that the underlying bank transfers would be rejected or stopped.
Without admitting the allegations, Baviskar consented to a proposed final judgment that remains subject to court approval. The judgment would permanently enjoin him from violating Section 10(b) of the Exchange Act and Rule 10b-5, impose a conduct-based injunction and require him to pay $6,078.16 in disgorgement, $1,914.41 in prejudgment interest and a $50,000 civil penalty. The case highlights a risk created when payment convenience and trading speed move faster than final cash settlement. Broker-dealers offering instant deposit access may need controls that evaluate the age of an account, the size of a requested credit compared with prior balances, repeated failed ACH transfers, stop-payment activity, immediate concentration in volatile securities and rapid withdrawal attempts. Controls applied only within one account may be less effective when the same pattern is distributed across multiple brokerage firms. Identity-linked analytics and escalation of repeated funding failures can therefore be as important as conventional trade surveillance. For customers, instant deposit credit is not a loan that can be cancelled without consequence after a trade has been placed. A pending transfer remains a representation that valid funds will arrive, and deliberately initiating an unfunded transfer or stopping payment after using the resulting buying power may create securities-fraud exposure in addition to account restrictions and collection liability.
KEY POINTS:
- Baviskar allegedly initiated 72 deposits totaling $377,200 across brokerage accounts at nine different broker-dealers.
- The SEC says the transfers were either drawn from accounts with insufficient funds or stopped before settlement.
- Provisional credits from the pending deposits allegedly allowed Baviskar to purchase more than $1.4 million in securities.
- Baviskar allegedly withdrew $6,078.16 in profits before the broker-dealers discovered that the underlying transfers had failed.
- The proposed settlement includes disgorgement of $6,078.16, $1,914.41 in prejudgment interest, a $50,000 civil penalty and permanent antifraud and conduct-based injunctions.