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Thursday, March 28, 2024 | Back issues
Courthouse News Service Courthouse News Service

SEC Sues ‘Cherry Pickers’ in Chicago

CHICAGO (CN) - Father and son investment advisers defrauded clients of millions of dollars by "cherry picking" trades, keeping the profitable ones for themselves and dumping the losers on clients, the SEC claims in Court.

The SEC sued Charles J. Dushek and his company, Capital Management Associates, and Dushek's son, Charles J. Dushek Jr., in Federal Court.

"The defendants engaged in cherry picking by assigning profitable trades to themselves, and unprofitable trades to CMA clients. They kept most of the profits, and saddled the clients with most of the losses. Many of the clients were senior citizens," the SEC says in the complaint.

Dushek Sr., 69, lives in Warrenville, Ill., and owns Capital Management Associates (CMA) with his wife and son. He is a licensed investment adviser and holds securities licenses.

Dushek Jr., 37, lives in Wheaton. His title at CMA is "vice president of administration." He never held any securities licenses and is not a registered investment adviser.

There was nothing subtle about the scheme, except for Dushek Sr.'s excuses, the SEC says in the complaint: "From 2008 to 2012, the Dusheks placed hundreds of millions of dollars in securities trades at CMA. For the vast majority of the trades, the Dusheks did not designate in advance whether they were trading client funds or personal funds.

"At the time of trading, the Dusheks did not enter the trades as a 'client' order or a 'personal' order. At the time of trading, the Dusheks also did not create a written record of whether they were trading client funds or personal funds.

"During testimony before the SEC, Dushek Sr. testified that he keeps a 'record in my head, that's it.' Dushek Sr. also testified that he has suffered from transient global amnesia, and that in the past five years, his 'memory ability and cognitive abilities seem to be diminishing.'

"The Dusheks delayed allocating the trades - often for days. The Dusheks typically waited at least one trading day - and often several days - before allocating the trades to client accounts or to personal accounts.

"The Dusheks monitored market prices in the meantime, and waited to see if the trades were profitable before allocating the trades to the clients or to themselves. By the time they allocated the securities, the Dusheks knew whether the trades were profitable.

"The Dusheks ultimately kept most of the winning trades, and allocated most of the losses to the clients. They assigned a disproportionate percentage of the profitable trades to themselves, and a disproportionate percentage of the unprofitable trades to the clients.

"From 2008 to 2012, the Dusheks placed more than 13,500 trades in securities at CMA. More than 75 percent of the trades that the Dusheks allocated to themselves were profitable at the time of allocation. By comparison, fewer than 25 percent of the trades allocated to the clients were profitable at the time of allocation.

"The Dusheks' personal accounts significantly outperformed the client accounts. From 2008 to 2012, the Dusheks reaped almost $2 million in profits from their personal trading accounts at the time of allocation. By comparison, the clients suffered losses of over $2 million at the time of allocation.

"The disparate performance continued for years. The Dusheks profited, and the clients suffered losses.

"For 17 consecutive quarters from 2008 to 2012, the Dusheks reaped positive returns in their personal accounts at the time of allocation. In sharp contrast, for 17 consecutive quarters from 2008 to 2012, the clients suffered negative returns at the time of allocation.

"The Dusheks' personal accounts experienced high internal rates of return. For example, from 2008 to 2011, Dushek Sr.'s Roth IRA had an internal rate of return of almost 25,000 percent. Meanwhile, the vast majority of the clients experienced negative internal rates of return from 2008 to 2012.

"The Dusheks - and Dushek Sr. in particular - used the illicit trading gains to finance an extravagant lifestyle. In fact, the scheme was their primary source of income.

"Dushek Sr. drew no salary or other compensation as president of CMA. Even so, he withdrew more than $1.8 million from his and his wife's personal CMA accounts between 2008 and 2012. He spent those funds on overseas vacations, a membership at an exclusive resort community, luxury cars, and an extravagant home featuring equestrian facilities.

"CMA clients placed their money in the hands of Dushek Sr., entrusting him to invest their money and act in their best interest. That trust was misplaced. The Dusheks enriched themselves at the expense of the clients."

The SEC seeks restitution, disgorgement, penalties and an injunction. It also sued Dushek Sr.'s wife, Margaret, as a relief defendant.

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