The US Securities and Exchange Commission (SEC) has announced that a Massachusetts-based investment adviser has been banned from the securities industry after uncovering an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.
SEC has filed fraud charges against Michael J. Breton and his firm Strategic Capital Management, alleging that they defrauded clients out of $1.3 million. Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts.
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Joseph Sansone, Co-Chief of the SEC Enforcement Division’s Market Abuse Unit, commented: “As alleged in our complaint, Breton assured clients that he would put their interests first but did just the opposite, taking the firm’s most profitable trades for himself and dumping the losing trades on his clients. Our probing analytical work will continue to root out investment advisers who subject their clients to cherry-picking.”
The Market Abuse Unit’s analysis of Breton’s trading showed that he defrauded at least 30 clients during a six-year period as outlined in SEC’s complaint. Breton allegedly purchased securities for both his own and clients’ accounts through a block trading or master account on days when public companies scheduled earnings announcements. He typically delayed allocation of those trades until later in the day after learning the substance of the announcement.
According to the SEC’s complaint, when companies announced positive earnings that would presumably increase the stock value, Breton disproportionately allocated those trades to his accounts. When companies announced negative earnings which would presumably decrease the stock value, Breton disproportionately allocated those trades to client accounts.
The SEC’s complaint has charged Breton and Strategic Capital Management with a series of violations of the Securities Exchange Act. Breton and his firm have agreed to a partial settlement subject to court approval. He will also face criminal charges.