A final judgment has been reached in the US Securities and Exchange Commission’s (SEC) fraud case against Strong Investment Management. The investment adviser, based in California, and its owner James Bronson are accused of running a cherry picking scam that harmed clients and went on for over four years. Now, they will pay $1.2M.
Strong has more than six dozen clients and Bronson had sole discretion regarding how to allocate trades that the firm made. The SEC brought its complaint against both of them early last year, with Bronson accused of using the investment adviser’s omnibus account to trade securities while delaying their allocations to different client accounts until he’d seen how the trades had performed throughout the day. Bronson would then allegedly “cherry pick” the trades by giving himself a disproportionate amount of the profitable trades while a similar disproportionate number of unprofitable ones were sent to clients. As a result, Bronson “reaped substantial profits” that he would not have otherwise.
Bronson and Strong are also accused of misrepresenting their allocation and trading practices in their Form ADV, which falsely stated that no accounts had been given preference when trades were divvied up. Now, they are liable for nearly $961K of disgorgement and over $100K of prejudgment interest. They must pay a $184,767 civil penalty.
Also settling SEC related charges is John Engebretson, who is Bronson’s brother and Strong Investment Management‘s ex-chief compliance officer. He is accused of not performing his compliance obligations and disregarding red flags that arose while the alleged scam was taking place. Engebretson has agreed to a $15K civil penalty. The SEC has barred the two men.
Prior to setting up Strong Investment Management, the brothers had worked with their dad Lester Engebretson at Engebretson Capital Management. However, in 1999, the SEC accused that investment adviser and Lester of handing out misleading marketing collateral that overstated the firm’s performance and violated certain requirements pertaining to records and books. That SEC investment adviser case was settled for $150K.
Laurel Wealth Advisors Accused of Inadequately Supervising Ex-Investment Adviser
In a different and unrelated SEC cherry picking case, Laurel Wealth Advisors, also an investment adviser based in California, will pay a $100K penalty. Laurel Wealth is accused of inadequately supervising its ex-financial adviser Joseph Buchanan, who is also settling related fraud charges. Both resolved the without denying or admitting to the regulator’s charges.
According to the Commission from at least 3/2013 to 6/2015, Buchanan disproportionally gave himself profitable trades while sending unprofitable ones to clients’ accounts. This purportedly led to over $56K in net same-day profits from him and nearly $61K in same-day losses for clients. The regulator said that the odds of profitable trades getting randomly distributed to Buchannan’s own accounts was under one in a billion.
Laurel Wealth, meantime, is accused of ignoring red flags, including phone and written warnings from its brokerage provider about the way Buchanan was distributing allocations and continuing to do so even after the provider suspended his omnibus account for a month. The SEC order said that during the period at issue, the investment adviser did not put into place the proper procedures that would mandate for Buchanan and others to get clearance and written approval before moving securities to their personal accounts. This, despite its Form ADV having “misleading statements” that Laurel Wealth had pre-clearance procedures In place to “prevent conflicts of interest” and make sure that any personal transactions by employees didn’t put clients’ interests at risk.
Now, Buchanan will disgorge $56,227 and $15,284 of prejudgment interest. He is permanently barred. Laurel Wealth will pay a $100K penalty and give a copy of the SEC order to everyone of Buchanan’s former clients at the firm.
Investor Fraud Lawyers
If you suspect that you were the victim of cherry picking by your broker or investment adviser, contact Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm) today. Our investor lawyer can help you explore your legal options during a free, no obligation case consultation. SSEK Law Firm represents clients throughout the US.