The Securities and Exchange Commission charged a former registered investment adviser Tuesday with keeping trading profits for himself while saddling clients with losses and misrepresenting his fees.
The SEC's claim against Laurence I. Balter — a resident of Kihei, Hawaii, founder of Oracle Investment Research and manager of Oracle Mutual Fund — states that he instituted a day-trading strategy in a single account that included his and his clients' trades.
Without telling his clients, the SEC alleged that from April 21, 2012, to May 30, 2013, and from July to December 2013, Mr. Balter would wait to see which trades were profitable and put those in his own account while allocating less profitable trades to his clients, who were in
separately managed accounts.
The SEC said Mr. Balter
realized approximately $490,000 in profits while his clients lost money.
The agency also claimed that Mr. Balter charged his fund clients both an advisory fee and a fund-management fee after telling clients he would give them a credit for the management fee.
“We allege that [Mr.] 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,” Jina L. Choi, director of the SEC's San Francisco Regional Office, said in a statement. “Investment advisers breach their fiduciary duty when they favor their own interests and force clients to take less profitable trades without their knowledge.”
A lawyer for Mr. Balter did not immediately respond to a request for comment.
(More: Former Morgan Stanley broker barred for unauthorized borrowing from clients)
The SEC will conduct administrative proceedings to determine punishment, which could include disgorgement and civil penalties.
The case is another one in which a financial regulator is targeting abuse of senior investors.
“The majority of [Mr.] Balter's clients were individual investors, many of whom were over 60 years old, retired or nearing retirement, and unsophisticated investors with little investment experience,” the SEC order states.
Mr. Balter is no longer registered with the SEC or the state of Washington, where Oracle Investment Research conducted business on Fox Island. Oracle Mutual Fund closed in August 2013.
