On Wednesday, September 12th, the Securities and Exchange Commission (SEC) charged a broker with allegedly misusing client account information to allocate gainful trades into their own accounts and unprofitable trades into client retirement accounts, also known as “cherry-picking.”
Allegedly, the charged broker obtained at least $700,000 over the course of six years by transferring trades into his own accounts and into his family member’s accounts.
The SEC detected the alleged fraud using its data analysis system and is seeking the return of alleged gains, plus interest, penalties and injunction.
WHAT DOES THIS MEAN FOR ME?
This case, although extreme, provides a reminder of the importance of a well-maintained Code of Ethics and robust Code of Ethics monitoring. Under the Investment Advisers Act of 1940, Rule 204a-1 requires access persons to report securities transactions and holdings.
The SEC encourages each registered investment adviser to adopt its own set of procedures and, as it relates to this case, recommends prior written approval before access persons can place a personal transaction, also known as a “pre-clearance.”
For more information about this case or the requirements of Code of Ethics, please reach out to Fairview directly.