New York Securities Lawyer Blog
On January 25, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the District of Massachusetts against Michael J. Breton (“Breton”), and his investment advisory firm Strategic Capital Management (“SCM”), (collectively the “Defendants”) for engaging in “cherry-picking,” and defrauding investors of approximately $1.3 million in proceeds (the “Complaint”). At all times during the fraud, Breton was under a fiduciary duty to SCM clients, and had made promises that his personal trading activities would not disadvantage SCM investor returns—statements that time proved to be misleading and false. The Defendants actions violated several antifraud statutes and SEC rules, including Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b- 5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”).
Cherry Picking occurs in many forms, but its basic structure is as follows. An investment advisor who is authorized to buy securities on behalf of investors purchases a stock, and then defrauds investors by waiting to see whether the stock goes up or down before allocating the trade to himself or his clients’ accounts depending on the profitability observed after the fact. The Complaint notes that in this instance, Defendants allocated more than 200 unprofitable trades to client brokerage accounts, while allocating more than 200 profitable trades to Breton accounts, after their gains were realized.
SCM is a limited liability investment advisory firm, registered in Massachusetts since 2000. Breton founded SCM in 1999, and served as the Managing Partner and Chief Compliance officer of SCM. Breton used two different brokerage firms to place orders through. According to the Complaint, Breton purchased securities through two master accounts, and they allocated these securities to various client accounts, or accounts he himself owned, depending on the profitability outcome of these trades. The Complaint alleges that this fraudulent cherry picking activity began in January 2010, and continued through March 2016. The Complaint notes that Breton would employ a familiar strategy of buying several stocks right before their earnings reports were released, then as soon as the earnings call was made, would immediately thereafter allocate winning stocks to his accounts, and stocks that missed earnings or revenue projections to his clients’ accounts.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.