The Securities and Exchange Commission has charged a former representative of investment adviser SeaCrest Wealth Management with engaging in a practice known as cherry-picking, WealthManagement.com reports.
The SEC accused Eric Cobb of South Carolina of a fraudulent scheme in which he allocated profitable securities trades to favored accounts and unprofitable trades to disfavored clients.
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, detailed the case against Cobb. It said that from at least June 2019 to mid-April 2022, Cobb allegedly disproportionately allocated profitable trades to his personal and wife’s accounts, and unprofitable trades to the accounts of his other clients.
To carry out the scheme, the SEC said he bought securities in an omnibus account and then often waited a day or longer to allocate the trade. That allowed him to see whether the securities had increased in price.
“In this way, Cobb created for himself the opportunity to see whether the trades he placed were profitable or unprofitable, as of the time he allocated those trades between the Cobb accounts and client accounts,” the complaint read. The SEC said Cobb would then disproportionately assign profitable trades to his own account while placing less profitable trades in clients’ accounts, a scheme that would ultimately earn him profits of about $170,11.
The SEC also alleges that Cobb routinely placed clients in highly volatile and risky investments that were inconsistent with their investment profiles.
Furthermore, the commission found that New York-based SeaCrest failed to implement policies and procedures reasonably designed to prevent violations of the federal securities laws and failed to supervise Cobb’s activities.
“We will use all the tools at our disposal to hold individuals accountable, including asking Courts to enforce our subpoenas, as we did in this case,” said Sheldon L. Pollock, Associate Regional Director in the New York Regional Office. “The enforcement action against SeaCrest demonstrates the importance of decentralized firms having robust compliance oversight with regard to employees who may be located elsewhere.”
Cobb was charged with violating the antifraud provisions of the federal securities laws. The SEC is seeking a permanent injunction, a conduct-based injunction, civil monetary penalties, disgorgement, and prejudgment interest. The SEC’s order found that SeaCrest willfully violated antifraud and books and recordkeeping provisions of the federal securities laws and failed to supervise Cobb. SeaCrest did not admit or deny the findings but agreed to be censured and pay a $375,000 penalty.
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