The U.S. Securities and Exchange Commission barred an investment advisor on Wednesday for allegedly cherry-picking more than $500,000 in gains from his clients.
Robert Mark Magee, an Austin, Texas, resident and owner and sole employee of Valor Capital Asset Management, agreed to settle the SEC’s charges in an administrative proceeding.
According to the SEC, Magee engaged in a cherry-picking scheme disproportionately claiming profitable trades for his personal account while allocating unprofitable trades to Valor’s clients.
From July 2012 to May 2015, Magee allegedly bought and sold securities via an omnibus account, but delayed allocating purchases until after a security’s intraday price changed.
In cases where the security’s price went up, Magee would sell the position and allocate both purchases and sales to his personal account, locking in gains for himself. If the price of a security declined, Magee would either sell the security the same day and allocate both purchases and sales to Valor clients, or hold the security and allocate the purchse to his clients, leaving them with unrealized losses.
From July 2012 to January 2015, Magee’s personal accounts were allocated 459 trades, of which nearly 82 percent were profitable, while Valor’s clients were allocated 1,365 trades, but only 16 percent of which were profitable. During the same period, Magee posted first-day profits of $349,643, an 0.88 percent return, while Valor’s clients posted first-day losses of $544,987, or -2.3 percent.
In January 2015, the brokerage Valor used to execute trades terminated its relationship with the firm over suspicions of cherry picking. Subsequently, Valor changed trading platforms, but the according to the SEC, the cherry picking did not cease.
From February 2015 to May 2015, Magee’s personal accounts posted first-day profits of $26,448, a 0.86 percent return, while Valor’s clients posted first-day losses of $42,446, -1.0 percent. Recognizing signs of cherry picking, Valor’s new brokerage terminated its relationship in May 2015.
When Valor initiated a third brokerage relationship in May 2015, it ceased using an omnibus account to execute trades, instead trading directly in client accounts. As a result, the firm could no longer cherry-pick profitable trades. During the period when the cherry-picking scheme was in place, Valor and Magee received $505,000 in profits, including losses avoided.
According to the SEC, Magee recently transferred all of Valor’s accounts to two separate, non-affiliated RIAs. Neither Valor nor Magee acts as an investment advisor for any of the accounts, and Magee terminated Valor’s investment advisor registrations in Texas and Louisiana in December 2015.