He allegedly took $500,000 worth of wheat and left his elderly clients with the chaff.
A Hawaiian financial advisor allegedly misled his clients before ”cherry-picking” trades, taking profitable ones for himself and leaving them with the unprofitable leftovers, according to a complaint by the U.S. Securities and Exchange Commission.
Laurence Balter and his Kihei, Hawaii-based firm, Oracle Investment Research, were charged with fraud in an SEC administrative proceeding on Tuesday.
Balter allegedly purchased equities and options in omnibus accounts and waited to allocate trades until after they were executed and Balter knew whether or not they would be profitable.
According to the SEC, most of Balter’s clients were individual investors over 60 years old. He placed most of their assets in large-cap securities and in his now-defunct mutual fund, the Oracle Mutual Fund, using a buy-and-hold strategy. These clients were charged an annual fee of 150 to 170 basis points.
In 2012, the SEC alleges, Balter began to employ a day-trading strategy for himself and a few clients, executing those trades through the omnibus accounts. Though his Form ADV said that he would conduct client trades prior to his own, and that clients would receive favorable prices in relation to employees on transactions conducted in the same day, the SEC claims that Balter regularly traded before his clients in the same securities.
Balter allegedly allocated profitable trades to a personal account and unprofitable trades to his client accounts. For example, from April 21, 2012 to May 30, 2013, Balter allegedly earned first-day returns in the omnibus accounts of approximately $220,000, a return of approximately 0.63 percent, while during the same period one of his clients suffered first-day losses of approximately $1.4 million, a 0.38 percent loss.
The SEC says that Balter’s scheme eventually siphoned approximately $490,000 worth of gains from his own clients.
The SEC also alleges that Balter told clients invested in his affiliated mutual fund that they would not pay both advisory fees and fund management fees, yet he charged both fees anyway. Though his Form ADV said that he would prorate a portion of the fund’s management fee to his advisory clients, Balter never credited those clients, according to the complaint.
In addition, trades within the mutual fund deviated from two of its fundamental investment limitations, according to the SEC, ultimately resulting in a non-diversified portfolio that caused significant losses to his investors.