Massachusetts investment adviser banned from securities industry for allegedly defrauding clients

Linus Unah – Fourth Estate Contributor

Washington D.C., United States (4E) – The U.S. Securities and Exchange Commission (SEC) Tuesday announced that a Massachusetts-based investment adviser has agreed to be banned from the securities industry after the agency uncovered an illegal cherry-picking scheme.

The agency’s discovery was done through its data analysis used to detect suspicious trading patterns.

The SEC filed fraud charges in federal district court against investment adviser Michael J. Breton and his firm Strategic Capital Management, alleging they defrauded clients out of about $1.3 million.

Breton allegedly placed trades through a master brokerage account and then allocated the firm’s most profitable trades for himself and dumped the losing trades on his clients.

Breton and his firm agreed to a partial settlement subject to court approval, according to the SEC.

Monetary sanctions would be determined at a later date.

In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Breton.

“Our probing analytical work will continue to root out investment advisers who subject their clients to cherry-picking,” Joseph G. Sansone , co-chief of the SEC enforcement division’s market abuse unit, said in a statement.

According to the SEC’s complaint, the analysis of Breton’s trading showed that he defrauded at least 30 clients during a six-year period.

Breton allegedly purchased securities for his own accounts and the client accounts through a block trading 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, the federal securities regulator said.

According to the SEC’s complaint, when companies announced positive earnings that would presumably increase the stock value, Breton allocated those trades to his accounts.

But when a company announced negative earnings that would presumably decrease the stock value, Breton allocated those trades to client accounts.

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