The U.S. Securities and Exchange Commission has sanctioned a wealth management firm in Purchase for careless supervision of a former employee who allegedly pocketed $170,000 in illicit profits in a cherry-picking scheme.
SeaCrest Wealth Management consented to censure and a $375,000 penalty, in a Dec. 12 cease-and-desist action filed by the SEC.
Simultaneously, the SEC brought a civil complaint in Manhattan federal court against the employee, Eric McKenzie Cobb, 52, of Spartanburg, South Carolina.
SeaCrest manages about $1.3 billion in assets and serves primarily high net worth individuals, according to a registration report filed in October. It has 26 offices and is run by Edward M. Sullivan, president; Ronald R. Lenihan, chief compliance officer; and Rajesh K. Gupta, partner emeritus.
The SEC says Cobb engaged in a cherry-picking scheme from January 2019 to April 2022. Rather than trading securities in client accounts, he placed block orders in a master account and then waited a day or so to allocate the trades.
Then he could see whether the prices of the securities had gone up or down, before assigning the trades to specific accounts.
Cobb disproportionally allocated profitable trades to accounts held by himself and his wife, according to the SEC, and unprofitable trades to his clients.
He allegedly pocketed $170,000 in illicit profits and caused $188,000 in losses to his clients.
“These disproportionate allocations were not random,” the SEC states in the cease-and-desist action against SeaCrest, “but rather reflected Cobb’s knowing or reckless favoritism.”
Cobb also bought $34 million in risky, highly-leveraged exchange traded funds for four clients, despite instructions to preserve capital or invest for moderate gains, according to the SEC.
SeaCrest was alerted at least a dozen times about possible unallocated trades. Yet, the firm never conducted an independent review, as required by its policies and procedures, until it was told about a potential cherry-picking scheme in May 2020.
Cobb was fired in August 2022.
SeaCrest violated a regulation that prohibits fraudulent conduct in the sale of securities, according to the cease-and-desist order, failed to implement written procedures to prevent fraudulent conduct, and failed to reasonably supervise Cobb.
The firm cooperated with the investigation, the SEC noted, and has taken remedial actions.
In the civil case, the SEC is asking the federal court to permanently ban Cobb from working as an investment adviser and to order him to disgorge ill-gotten gains.
