Compliance Solutions for Investment Advisers

Cherry-Picking

I was reviewing some of the more interesting and relevant SEC Enforcement cases and came across the cherry-picking scheme of J.S. Oliver Capital Management, a San Diego-based investment adviser, and its President, Ian Mausner. According to the SEC complaint, they engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.  Meanwhile they doled out less profitable trades to other clients, including a widow and a charitable foundation.  The disfavored clients suffered approximately $10.7 million in harm.

Mausner engaged in the cherry-picking scheme by generally waiting to allocate trades until after the close of trading or the next day.  This allowed Mausner to see which securities had appreciated or declined in value, and he gave the more favorably priced securities to the accounts of four J.S. Oliver hedge funds that contained investments from Mausner and his family.  Mausner profited by more than $200,000 in fees earned from one of the hedge funds based on the boost in its performance from the winning trades he allocated.  Mausner also marketed that same hedge fund to investors by touting the fund’s positive returns when in reality those returns merely resulted from the cherry-picking scheme.

But that is not the only unethical activity the firm or its President were involved in . . . stay tuned.

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