A San Diego-based investment advisory firm and its president have been charged by the SEC with a cherry-picking trade scheme that cost clients, including a widow and a charitable foundation, $10.7 million, the SEC announced Friday.
J.S. Oliver Capital Management and Ian O. Mausner, the firm’s president and head portfolio manager, are charged by the SEC with cherry-picking more profitable trades and awarding them to hedge funds in which Mausner and his family had invested. Meanwhile the less profitable trades were doled out to other clients, costing them $10.7 million.
According to the SEC’s order instituting administrative proceedings, Mausner engaged in the cherry-picking scheme from June 2008 to November 2009 by 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 himself and his family.
The SEC also has charged that Mausner and J.S. Oliver, a partner of the investment advisory firm, misused soft dollars, which are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment advisor’s client accounts. Mausner and Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that did not benefit clients, such as a payment to Mausner’s ex-wife related to their divorce. The soft dollar scheme occurred from January 2009 to November 2011, the SEC says.
Douglas F. Drennan, a portfolio manager at J.S. Oliver Capital Management, has also been charged by the SEC for his role in the soft dollar scheme.
According to the SEC’s order, Drennan participated in the soft dollar scheme by submitting false information to support the misuse of soft dollar credits and approving some of the soft dollar payments to his own company, a research and consulting firm.