The SEC brought charges against an investment adviser for allegedly (i) "cherry-picking" profitable trades for his own accounts, and (ii) misleading senior clients and others about fees and risks. The SEC alleged that the adviser purchased equities and options in an omnibus account for the firm and waited to see which trades were profitable before allocating the trades to accounts. The adviser then allocated the profitable trades to his own accounts and the unprofitable trades to those of his clients.
In addition, the SEC Cease-and-Desist Order stated that the adviser collected advisory and fund management fees from clients while assuring them that they would not be charged both types of fees. The SEC estimated that the adviser collected more than half a million dollars in ill-gotten gains by siphoning winning trades from his clients' accounts and withdrawing the excess fees.
SEC San Francisco Office Director Jina L. Choi noted the conflict:
Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.
The SEC also specified that the matter will be scheduled for a public hearing before an administrative judge, whose initial decision will detail any remedial actions to be taken.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.