The Securities and Exchange Commission today announced fraud charges against an investment adviser accused of “cherry-picking” profitable trades for his own account rather than a client’s accounts, and misleading seniors and other clients about the fees he charged and the risks in investments he recommended.
The SEC Enforcement Division alleges 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. Balter allegedly allocated profitable trades to his own accounts and unprofitable trades to his client accounts.
The SEC Enforcement Division further alleges that Balter falsely told clients invested in his affiliated mutual fund 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.
“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,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. “Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.”
The SEC Enforcement Division alleges that Balter violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, Sections 206(1), 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-8, and Sections 13(a) and 34(b) of the Investment Company Act of 1940. The matter will be scheduled for a public hearing before an administrative law judge, who will prepare an initial decision stating what, if any, remedial actions are appropriate.
The SEC Enforcement Division’s investigation was conducted by Rebecca Lubens and Monique Winkler of the San Francisco office. The SEC examination that led to the investigation was conducted by Karah To, Pamela Heijmans, Ada Chee, Edward G. Haddad, and Matt O’Toole of the San Francisco office. The litigation is being led by Jason Habermeyer and Robert Tashjian.