The SEC has accused a New Orleans investment advisor of cherry-picking trades to benefit himself, his mother, and a few select clients. The agency also accused the firm he worked for of failing to adequality supervise him.

Steven Jacobson is accused of disproportionately allocating profitable trades to that accounts that included one in his name, another in the name of Marian Jacobson, his mother, and three other favored clients, according to the SEC.

The alleged transactions took place between July 31 and Oct. 1, 2020, while he was working as an advisor for Dallas-based Advisor Resource Council (ARC). The scheme allowed Jacobson and his mother to earn $207,902 more than if they had received the proper first-day return allocations, the SEC said.

Jacobson perpetuated his scheme by initially placing his trades at 11 a.m. so that he could watch the intraday performance before waiting until 3 p.m. to allocate most of the trades, the SEC said. 

“A statistical analysis of the trading shows that Jacobson disproportionately allocated profitable option trades to the favored accounts and disproportionately allocated unprofitable trades to the disfavored accounts,” the SEC said in the complaint. 

The result was that the disadvantaged clients wound up facing first day losses of up to $414,942, which equates to slightly more than 97% of the total losses, compared with the $11,340 in losses Jacobson and his mother suffered, which was just under 3%, the SEC said.

“The probability that mere chance would result in such favorable allocations to Jacobson and his mother is less than a one-in-a-million chance,” the complaint said.

Despite conflicting accounts, Jacobson said he gave prior notice of all of his trades, according to the SEC.

“Jacobson also claimed that before each block trade, he handwrote the planned allocation on a trade ticket, which he retained in his office files,” the SEC said in its complaint. “But ARC’s then CEO and Jacobson’s assistant never saw a written trade allocation in Jacobson’s office.”

TD Ameritrade custodied Jacobson’s assets because ARC’s traditional custodian, LPL Financial, would not do it because it was involved in ongoing litigation with Jacobson, the SEC said. However, it was TD that first discovered the inappropriate allocation and subsequently terminated his access to the platform, the agency said.

ARC failed to take any action against Jacobson in the wake of TD’s decision, the SEC said. The SEC also alleged that the firm lacked adequate supervisory capabilities and had an inadequate compliance staff. For instance, in 2019, the firm had only three compliance staff workers responsible for supervising 74 advisors across 40 different branch offices, the SEC said.

“ARC failed to proactively monitor trading for clients custodied on the TD platform, including for suitability, and instead employed a system that inadequately relied on broker-dealers’ alerts,” the SEC said. “ARC was required by the Advisers Act to adopt and implement policies and procedures reasonably designed to prevent violations relating to [investment advisor representative’s] portfolio management, including cherry-picking.”

ARC also ignored numerous red flags about Jacobsen prior to him joining ARC in October 2019. His ex-wife had accused him of “misappropriating” $450,000 from his son’s Uniform Transfers to Minors Act (UTMA) account and he had been terminated from his previous job for inappropriate behavior unrelated to securities or client harm, the SEC said.

ARC elected to take a chance on Jacobson due to his book of business and initially considered placing him under heightened supervision before deciding against it, the SEC said.

The SEC said it is seeking judgments against Jacobson and ARC for their violations of the Securities Act and Exchange Act as well as civil penalties from both. It is also seeking disgorgement from Jacobson and his mother, who was named as a relief defendant, for ill-gotten gains. 

Jacobson and representatives of ARC could not be reached for comment by press time.