A Nevada-based investment adviser representative and his firm have been charged with defrauding their clients through a cherry-picking scheme, Financial Advisor reports.
The Securities and Exchange Commission filed the charges against Steve Susoeff, LLC (dba Meritage Financial Group) and Steven J. Susoeff, its sole owner and principal, who managed about $8 million for 59 clients.
The complaint, filed in federal court for the District of Nevada, covers the period from January 2021 through July 2021. According to the SEC, Susoeff placed securities trades using Meritage’s omnibus trading account, which is intended to facilitate purchases of securities for multiple client accounts.
The trades were placed early in the trading day but not allocated to specific clients or Susoeff’s personal accounts until later in the day. Susoeff disproportionately allocated profitable trades to the accounts of himself, his girlfriend, and a business associate, and unprofitable trades to his other clients’ accounts, the complaint stated.
“Allocating trades in a way that favors some accounts over other disfavored accounts defrauds the disfavored clients and violates the fiduciary duties that an investment adviser owes to them, including Susoeff’s duty of care and duty of loyalty to his advisory clients,” the SEC said.
The scheme allegedly sent over $54,000 in ill-gotten gains to Susoeff’s account and over $90,000 to the accounts of his girlfriend and associate. Meanwhile the fraud caused the clients in the disfavored accounts to lose over $144,500. The SEC said Susoeff ignored warnings about the scheme from his broker-dealer, who told him that clients should not be disadvantaged in trades and should be treated fairly and equitably.
Susoeff and Meritage are charged with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, Sections 17(a)(1) and (3) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties.
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