SEC Settles Cherry-Picking Case Involving Advisory Firm and Its CCO

March 26, 2026

What Happened?

The SEC recently settled an enforcement action against an investment advisory firm and its Chief Compliance Officer involving an alleged “cherry-picking” scheme. From December 2016 through October 2019, the SEC alleged that the CCO disproportionately allocated profitable trades to his personal account while assigning less profitable or losing trades to client accounts. The SEC also alleged that this conduct conflicted with the firm’s disclosures, which stated that trade allocation would be handled fairly and that employee trading activity was closely monitored.

How the Scheme Worked

According to the SEC’s complaint, the CCO placed trades through omnibus accounts and delayed allocations until later in the trading day. By waiting to see whether positions had gained or lost value before assigning them, the SEC alleged that the CCO steered profitable trades to his personal account and directed unfavorable trades to client accounts.

Misleading Regulatory Disclosures and Compliance Failures

The SEC also alleged that the firm’s disclosures were misleading. The firm’s regulatory disclosures and brochures (reviewed and approved by the CCO himself) represented to clients that:

• All trades would be allocated fairly;
• Employee trading was regularly monitored; and
• Employees would not place personal interests ahead of client interests.

However, the firm did not, in practice, review the CCO’s trading activity or allocation decisions. Based on these facts, the SEC found violations of Section 206(2) of the Advisers Act.

Penalties

The CCO agreed to a six-month suspension from the industry, a temporary bar from serving in certain roles involving registered investment companies, disgorgement of $78,490, prejudgment interest of $31,048.24, and civil penalties of $149,538.24. The firm received a censure, but no financial penalties.

Under the settlement, the CCO agreed to:

• A six-month industry suspension,
• A temporary bar from serving in certain roles involving registered investment companies,
• Disgorgement of $78,490,
• Prejudgment interest of $31,048.24, and
• A civil penalty of $149,538.24.

The firm was censured but did not receive a financial penalty.

What does this mean for me?

This case is a reminder that (1) allocation practices must match written disclosures; (2) “monitoring” of employee trading cannot be merely aspirational; and (3) firms need independent oversight of personal trading, especially for senior personnel responsible for compliance.