The complaint in US District Court in Manhattan accuses Dennis McNell of Redwood Trading LLC in California of aiding and abetting a customer's fraudulent trading scheme between Oct 2003 and Sept 2004 to make thousands of short sales of securities listed on the New York Stock Exchange.

The customer, Robert Beardsley, was accused in a separate filing by the SEC on Wednesday in the same court of 'a manipulative trading scheme' in the name of Redstar Capital.

That complaint also named another Redwood customer, George Lindenberg, as part of the scheme.

Contact information for lawyers representing the three men was not immediately available.

McNell helped the customers, both day traders, by 'disabling the function of Redwood's trading software that was programmed to prevent illegal short selling' so that the illegal orders were not blocked, the SEC said.

It said Beardsley, 45, of Atherton, California and Lindenberg, 37, of Austin, Texas concealed their involvement by trading through Redwood accounts in the names of two nominees.

Short selling is a legitimate trading strategy where investors borrow stock they expect will fall in price in the hope of repaying the loans for less and pocketing the difference. However, in the recent market downturn short sellers have been blamed by lawmakers and corporate executives for exacerbating the financial crisis.

In September this year, the SEC and regulators in other countries took steps to temporarily halt short selling of financial stocks amid extreme market turmoil and concern that the failure of Lehman Brothers would accelerate losses in other financial firms.

The SEC and other securities regulators also took steps to crack down on rumor mongering, which lawmakers and corporate executives had partially blamed for Bear Stearns' demise.

McNell, 42, who was chief executive officer and chief operating officer of the now defunct broker-dealer, was also charged with fraudulently concealing trading losses of US$140,000 in 90 trades during July and August 2004.

He has not been associated with a securities broker or dealer since Dec 2006, the complaint said. It said only that he lives in northern California.

The SEC said Beardsley and Lindenberg 'repeatedly executed short sales with the intent to artificially depress the price of those shares so that they could then cover their short positions at favorable prices'.

They 'routinely executed short sales while the stock price was declining, in violation of an SEC rule that was in effect at that time.' -- REUTERS