Articles Tagged with cherry picking

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.


Steele Financial is Accused of Investor Fraud

The US Securities and Exchange Commission has filed civil charges against investment advisory firm Steele Financial Inc. and its owner Tamara Steele. According to the regulator, they allegedly sold $13M of risky securities to over 120 advisory clients. A lot of these clients are teachers, ex-teachers, or other public education employees. The SEC contends that Steele and her investment advisory firm did not tell them that Steele Financial would be making up to 18% in commissions in sales.

According to the Commission’s investment advisory fraud complaint, from 12/2012 to 10/2016, Stele Financial and Steele sold over $15M of Behavioral Recognition Systems Inc. securities. BRS is a company that the SEC has charged with fraud in the past. Meantime, Stele and her firm made over $2.5M of commissions.

SEC Accused Investment Adviser of Profiting from Cherry Picking

The US Securities and Exchange Commission has filed a civil fraud case against Strong Investment Management, which is a California-based investment adviser, and its president/owner Joseph B. Bronson. The regulator is accusing them of running a cherry picking scam that defrauded the firm’s clients.

The Commission contends that Bronson used Strong’s omnibus account to trade securities but would wait to see how they performed during the day before distributing them to certain client accounts. Meantime, Bronson purportedly made healthy profits at cost to clients by cherry picking the trades. He is accused of giving himself trades that were profitable while sending unprofitable ones to firm clients.

The SEC’s complaint contends that in Forms ADV, Bronson and Strong misrepresented trading and allocation practices by falsely stating that every trade would be allocated according to the terms of pre-trade allocation statements with no preference granted to any account. Bronson’s brother, ex-Strong chief compliance officer John B. Engebreston, is accused of not fulfilling his job by failing to make sure that Strong’s policies and procedures for trade allocation were followed. He also is accused of “repeatedly” ignoring “red flags” when it came to Strong’s allocation practices.

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SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees

The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

Investment Advisory Firm Founder Gets 2-Year Prison Term, Will Pay $1.3M for Fraud
Michael J. Breton, a Massachusetts investment adviser, has been sentenced to two years behind bars for running a cherry picking scam that allowed him to bilk clients. Breton, the founder of Strategic Capital Management, admitted to keeping profitable trades for himself while making unprofitable ones for customers. Breton has been ordered to pay them $1.3M in restitution.

The cherry picking scheme went on for six years, bilking 30 investors. According to regulators and prosecutors, when certain companies were slated to announce earnings announcements, Breton would purchase securities through a master account or via block trading. When the earnings news would raise a stock’s price, Breton would keep the trades. When an earnings announcement would cause a stock’s price to go down,
he would disburse these trades to clients.

Jury Convicts Indiana Investment Advisor of Securities Fraud
This week in Pittsburgh, a jury convicted Bernard Parker of mail fraud, securities fraud, and of filing false tax returns. Parker, who was the principal of Parker Financial Services, is accused of bilking 22 clients of over $1.2M and falsifying his US tax returns by not including over $790K in income.

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Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

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Ex-Financial Adviser Who Worked for Texas-Based Firm is Barred by SEC After Defrauding Pro Athletes 
Ash Narayan, an ex-California financial adviser, has been barred by the US Securities and Exchange Commission. Narayan, who is accused of secretly receiving almost $2M from companies that he invested in on behalf of his professional athlete clients, agreed to no longer associate with advisory or brokerage firms to resolve the regulator’s allegations.

Narayan worked for Dallas firm RGT Wealth Advisors, but he was based in California as the managing director of its Irvine office. He also is accused of misrepresenting himself as a CPA and placing clients in unsuitable private investments. In October, the Certified Financial Planner Board of Standards issued a temporary suspension against him while an investigation was conducted into the allegations. RGT Wealth Advisers fired Narayan early this year.

According to the SEC, Narayan’s alleged fraud occurred between 2010 and 2016, during which time he directed $33M to a company that he was involved in and was in poor financial health. By settling, Narayan is not denying or admitting to the SEC charges.

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 SEC Charges Hawaii-Based Investment Adviser for Misleading Clients and Cherry Picking
The U.S. Securities and Exchange Commission has filed civil charges against Oracle Investment Research, which is based in Hawaii, and its owner Laurence I. Balter. The regulator claims that the investment adviser cherry picked trades that were profitable for his own accounts. He is also accused is  misleading clients, including senior citizens, about the risks involved in the investments he recommended, as well as about the fees they would be charged.
 
According to the SEC Enforcement Division, Balter and Oracle Investment Research bought options and equities in an omnibus account but waited to distribute the trades until their execution. Then, he would allegedly move the profitable trades into his accounts and the unprofitable ones to the accounts of clients. 
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