SEC charges San Diego-based adviser for fraudulent ‘cherry-picking’ scheme

According to the SEC's complaint, from May 2021 through March 2022, Werthe placed securities trades using a block trading account, which is intended to facilitate purchases of securities for multiple client accounts. As alleged, Werthe placed the securities trades early in the trading day but did not allocate the trades to his and his clients' accounts until later in the day.

The complaint alleges that Werthe disproportionately allocated profitable trades to himself and unprofitable trades to his clients' accounts, and derived at least $450,000 in ill-gotten gains from the scheme. The complaint also alleges that Werthe also made false and misleading statements to his clients and prospective clients regarding his personal trading, his trading for clients, and the reasons for switching the clients' account to a new broker-dealer custodian.

The SEC's complaint, filed in the U.S. District Court for the Southern District of California, charges Werthe with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 thereunder, Sections 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks a permanent injunction, a conduct-based injunction, disgorgement with prejudgment interest, and civil penalties.

The SEC's investigation was conducted by the staff of the Los Angeles Regional Office, with assistance from Joshua Mallett and Selvin Akkus Clemens in the Division of Economic and Risk Analysis. The litigation will be led by Daniel Lim and supervised by Gary Leung.

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Original text here: https://www.sec.gov/litigation/litreleases/2023/lr25710.htm