The SEC has charged two former investment advisor representatives for allegedly orchestrating separate cherry-picking schemes that defrauded clients over the course of several years.
According to complaints filed by the SEC, William D. Carlton of Kirkland, Washington, and Hans K. Hernandez of Hillsborough, New Jersey profited at the expense of their clients by selectively allocating trades between their personal accounts and client accounts.
In a statement released Friday, the regulator described how Carlton and Hernandez delayed the allocation of trades until they could observe daily price movements, allowing them to disproportionately assign profitable trades to their own accounts while assigning unprofitable ones to their clients. The SEC estimates that Carlton generated approximately $5.3 million in illicit profits from 2015 to 2022, while Hernandez earned more than $1 million between 2020 and 2022.
The SEC filed separate federal court complaints against Carlton and Hernandez, seeking permanent injunctions, disgorgement of profits with prejudgment interest, and civil penalties against both individuals.
In a related action, the SEC reached a settlement with two firms associated with the advisers, Cetera Investment Advisers and First Allied Advisory Services, a former RIA that withdrew its SEC registration in 2020 as its investment advisor representatives were absorbed into Cetera. The regulator said compliance failures at the firms, which Carlton and Hernandez were both associated with, allowed the cherry-picking to occur during the period in question.
The SEC’s order found that Cetera and First Allied failed to supervise the advisors effectively and did not have adequate policies in place to prevent the improper trade allocations. It argued that the firms’ forms ADVs, which outlined policies regarding personal trading, were misleading as they specified advisors were not permitted to disadvantage client accounts while trading for their personal accounts.
Without admitting or denying the findings, Cetera and First Allied agreed to settle the charges, consenting to a cease-and-desist order, a censure, and a penalty of $200,000.
In a statement to InvestmentNews, Cetera said it took immediate action as soon as it found out about Carlton and Hernandez's activities.
"Upon learning about this issue, Cetera acted promptly to cease the activity and previously terminated these individuals’ affiliations with Cetera," a spokesperson told IN. "We have established processes in place to prevent any similar actions in the future. Cetera has fully cooperated with the SEC in this case and will continue to do so as the SEC pursues action against these individuals."
Broker-dealers that sold the defunct securities backed by Inspired Healthcare generated more than $100 million in fees and commissions.
FINRA barred the advisor, Sung Moo Cho, last month.
A new MetLife survey finds real estate professionals are increasingly steering clients toward tax experts as rising property values leave more sellers facing significant capital gains.
The independent broker-dealer expands its business development bench with a new recruiter and an internal promotion in the West.
The leading ultra-high-net-worth RIA joins other large wealth firms, including Raymond James and LPL, in creating executive roles focused on artificial intelligence strategy
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
