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August 30, 2013 at 08:02 AM
The Securities and Exchange Commission announced Friday charges against a San Diego-based investment advisory firm and its president for allegedly steering winning trades to favored clients and misusing soft dollars.
The SEC’s Enforcement Division alleges that J.S. Oliver Capital Management and Ian O. Mausner engaged in a cherry-picking scheme that awarded more profitable trades to hedge funds in which Mausner and his family had invested.
Meanwhile, the SEC says that Mausner and his firm “doled out less profitable trades to other clients,” including a widow and a charitable foundation. The disfavored clients suffered approximately $10.7 million in harm.
The SEC’s Enforcement Division further alleges that Mausner and J.S. Oliver misused soft dollars, which, as the SEC explains, are credits or rebates from a brokerage firm on commissions paid by clients for trades executed in the investment advisor’s client accounts.
“If appropriately disclosed, an investment advisor may retain the soft dollar credits to pay for expenses, including a limited category of brokerage and research services that benefit clients,” the SEC says. “However, Mausner and J.S. Oliver misappropriated more than $1.1 million in soft dollars for undisclosed purposes that in no way benefited clients, such as a payment to Mausner’s ex-wife related to their divorce.”
Marshall Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement that “Mausner’s fraudulent schemes were a one-two punch that betrayed his clients and cost them millions of dollars. Investment advisors must allocate trades and use soft dollars consistent with their fiduciary duty to put client interests first.”
