SEC Charges Former Representative Of Advisory Firm SeaCrest With Cherry-Picking - Firm Settles SEC Charges Related To Former Employee’s Misconduct
The Securities and Exchange Commission today charged Eric Cobb of South Carolina with engaging in a fraudulent scheme where he allocated profitable securities trades to favored accounts and unprofitable trades to disfavored clients, a practice known as cherry-picking, while he was a representative of investment adviser SeaCrest Wealth Management, Inc. The SEC also announced settled charges against SeaCrest in connection with the scheme.
According to the SEC’s complaint against Cobb, from at least June 2019 to mid-April 2022, Cobb allegedly disproportionately allocated profitable trades to his personal and wife’s accounts, and unprofitable trades to the accounts of his other clients. Cobb allegedly executed the scheme by buying securities in an omnibus account and then often waiting a day or longer to allocate the trades, which allowed him to see whether the securities had increased in price. The SEC’s complaint also alleges that Cobb routinely placed clients in highly volatile and risky investments that were inconsistent with their investment profiles.
The SEC’s order regarding New York-based SeaCrest, which oversees representatives located in more than two dozen offices around the country, found that the firm failed to implement policies and procedures reasonably designed to prevent violations of the federal securities laws and failed to supervise Cobb’s activities.
“We will use all the tools at our disposal to hold individuals accountable, including asking Courts to enforce our subpoenas, as we did in this case,” said Sheldon L. Pollock, Associate Regional Director in the New York Regional Office. “The enforcement action against SeaCrest demonstrates the importance of decentralized firms having robust compliance oversight with regard to employees who may be located elsewhere.”
The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Cobb with violating the antifraud provisions of the federal securities laws and seeks a permanent injunction, a conduct-based injunction, civil monetary penalties, disgorgement, and prejudgment interest. The SEC’s order found that SeaCrest willfully violated antifraud and books and recordkeeping provisions of the federal securities laws and failed to supervise Cobb. SeaCrest, without admitting or denying the SEC’s findings, agreed to be censured and pay a $375,000 penalty.
The SEC’s investigation was conducted by Bennett Ellenbogen, James Flynn, Richard Primoff, and Lindsay S. Moilanen of the New York Regional Office and was supervised by Mr. Pollock. The SEC’s litigation will be led by Mr. Ellenbogen and Mr. Primoff and supervised by Alex Vasilescu. The SEC appreciates the assistance of SEC Division of Examinations staff, Arjuman Sultana, Michael Qualter, Emanuel Asmar, and Merryl Hoffman; and SEC Division of Economics and Risk Analysis staff, Kathryn Paige and Tyler Remick.