A New Jersey-based advisor has agreed to pay more than $1.7 million to settle charges brought by the Securities and Exchange Commission that he and his firm engaged in a long-running cherry-picking scheme in which they unlawfully gained more than $1 million.

The SEC's complaint, filed yesterday in U.S. District Court in New Jersey, alleged that from April 2015 through June 2022 Douglas MacWright, 67, of Short Hills, through Highlander Capital Management, LLC (HCM), used an average price account to disproportionately allocate trades that had increased in value during the day of execution to a “preferred account” owned by himself, his family members and other entities he controlled. 

The complaint also alleged that MacWright disproportionately allocated trades that had decreased in value during the day they were executed to the “non-preferred accounts” held by individuals and entities for which he served as advisor.

“Specifically, for profitable trades, MacWright regularly closed the trading position, thereby realizing a same-day profit, and then allocated the trades and the profits to the Preferred Account. If the price decreased in value during that day, MacWright generally caused the position to be allocated to one or more Non-Preferred Accounts,” the complaint said.

MacWright, the complaint said, failed to comply with HCM’s written policies and procedures with respect to trading. In part, the firm’s rules call for fair and equitable allocation procedures to all clients “with no particular group or client(s) being favored or disfavored over any other clients.” It also prohibited “any allocation of trades in a manner that [HCM]’s proprietary accounts, affiliated accounts, or any particular client(s) or group of clients receive more favorable treatment than other client accounts.”

The SEC said MacWright’s trade allocations to the preferred account increased in value 98.6% of the time on the trade day, while the trades he allocated to the non-preferred accounts increased in value only 19.2% of the time on the trade day.

“Because of MacWright’s cherry-picking scheme, his allocations to the Preferred Account were almost always profitable in the short term, with first day returns of 0.83%, while allocations to the Non-Preferred Accounts were generally unprofitable in the short term, with first day returns of negative 1.03%,” the complaint said.

“The likelihood that MacWright would have earned these returns for himself in the absence of cherry-picking, with trade allocations determined by chance, is less than one in a billion,” the complaint noted.

Without admitting or denying the allegations, MacWright agreed to pay $1,118,718 in disgorgement, $253,903 in prejudgment interest, and a civil penalty of $400,000. HCM was ordered to pay a civil penalty of $150,000. The settlements are subject to court approval, the SEC said.

MacWright has been operating HCM since 1991, according to BrokerCheck. He began in the  industry in 1981 with Ryan, Beck & Co.

A call to his direct line at his office was picked up by someone who said McWright was not available.