LOS ANGELES (CN) – An L.A.-area investment adviser cherry-picked trades to scoop up $2 million for himself, while losing $4.4 million for his customers, the SEC claims in court.
Click here to read Courthouse News’ Securities Law Review.
The SEC sued Aletheia Research and Management Inc. and its CEO Peter Eichler Jr., in Federal Court. Eichler, 54, of Pacific Palisades, founded Aletheia in 1997 and then ran it out of Santa Monica, as its owner, chairman, CEO and chief investment officer. He “was solely responsible for all investment decisions, including the fraudulent cherry-picking of options,” the SEC says in its 37-page complaint.
California suspended Aletheia’s corporate status on Oct. 1 for nonpayment of taxes and it filed for Chapter 11 bankruptcy in November, the SEC says.
The “heart” of Eichler’s “cherry-picking scheme” was that he “generally did not allocate a specific option trade to any one account until after the trade was executed,” the SEC says in its complaint. “Allocations of options trades were made hours and sometimes days after execution. This delay gave the defendants the opportunity to ‘cherry-pick’ – that is, allocate the winning trades to some accounts, and allocate the losing trades to other accounts. And that is exactly what the defendants did. They allocated the winning trades to certain favored accounts, including accounts personally held by Eichler as well as other select employees and clients, and allocated the losing trades to two disfavored hedge funds.”
The SEC claims: “Over the course of approximately 27 months, from mid-August 2009 through November 2011, the defendants’ cherry-picking scheme allowed the favored accounts to obtain approximately $4.14 million in profit (including roughly $2 million in profit to Eichler’s personal accounts), while the two disfavored hedge funds sustained trading losses of approximately $4.4 million.”
The SEC says in the complaint that “many investment advisers” do not allocate trades to specific accounts until after the trades are executed.
Eichler’s “disfavored hedge funds” were called Alethia Insider Index LP and Alethia Insider Index II LP, the SEC says. Investors in these funds were “primarily high net worth individuals,” the SEC says.
During the 27 months at issue, Eichler and his company made about 4,791 options trade for a total of $238.9 million, according to the complaint. Most were allocated more than an hour after execution, or after the options positions had closed – when Eichler knew whether it had won or lost, according to the complaint.
It seeks disgorgement and penalties and asks the judge to order Eichler in no uncertain terms not to do it again.
- CA Judicial Council Spells Info Request Terms
- Secret Lives|of the Founding Fathers