The perpetrators of a scheme that sought to exploit a California-based brokerage firm’s practice of enabling new clients to trade without waiting for their account transfers to clear have pleaded guilty to money-laundering conspiracy charges.

The four defendants — Edward Hernandez, Christopher Flagg, Daquan Lloyd and Corey Ortiz — made the pleas in connection with a scheme that involved opening hundreds of fake accounts to take advantage of short-term cash advances available to new investors. Authorities alleged the scheme took place between December 2018 and January 2023.

The advances were typically up to $5,000. These accounts then bought thinly traded, highly speculative stock options at above-market prices, which other accounts controlled by the defendants traded against.

“In effect, the defendants transferred the instant deposits from the losing accounts to the winning accounts by way of fraudulent securities transactions,” U.S. authorities alleged.

In the meantime, the transfers into the new accounts failed to clear, as they were drawn on bank accounts with no money in them. This left the new brokerage accounts with “negative balances and worthless options.”

“Each defendant was convicted of their roles in a sprawling and complex nationwide scheme organized from Long Island to steal millions of dollars that were intended for legitimate investors and launder the proceeds of their crime,” said Breon Peace, U.S. attorney for the Eastern District of New York, in a release.