SEC Charges Investment Advisor With Fraud and Cherry-Picking

Investing

Published: October 4, 2016 12:35 pm

Last Updated: January 13, 2020 2:48 am

The U.S. Securities and Exchange Commission (SEC) recently announced fraud charges against an investment adviser accused of “cherry-picking” profitable trades for his own account rather than a client’s accounts. He further mislead seniors and other clients about the fees being charged and the risks involved in the investments he recommended.

The SEC Enforcement Division alleged that Laurence I. Balter and his Kihei, Hawaii-based firm Oracle Investment Research purchased equities and options in an omnibus account and waited to allocate the trades until after they were executed and Balter knew whether they were profitable. He allegedly allocated profitable trades to his own accounts and unprofitable trades to his client accounts.

The agency further alleged that Balter falsely told clients invested in his affiliated mutual fund that they would not pay both advisory fees and fund management fees, yet he charged both fees anyway.

Balter also allegedly made trades for the mutual fund that deviated from two of its fundamental investment limitations and ultimately resulted in a non-diversified portfolio that caused significant losses to investors.

Jina L. Choi, director of the SEC’s San Francisco Regional Office, commented:

We allege that Balter reaped more than a half-million dollars in ill-gotten gains by siphoning winning trades from his clients and withdrawing more than his fair share of management fees. Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.