SEC Sanctions Investment Adviser and Executive for Disproportionate Trade Allocations
From the desk of Jim Eccleston at Eccleston Law
The Securities and Exchange Commission (SEC) has determined that the conduct of registered investment advisory firm Barrington Asset Management, and its executive vice-president and chief compliance officer, Gregory Paris, disadvantaged clients and breached their fiduciary duties owed to clients.
According to Bloomberg Law, from December 2015 through October 2019, Paris disproportionately allocated profitable securities trades to himself while allocating unprofitable trades to advisory clients.
Barrington had discretionary authority to place trades for its advisory clients. Paris frequently executed those trades through block trading omnibus accounts rather than placing trades directly into individual client accounts. Omnibus accounts permitted securities transactions for multiple accounts without identifying the specific account intended to receive each trade before execution.
Bloomberg Law reports that Paris generally allocated the trades near the end of the trading day. When he purchased stock through an omnibus account, he often waited until the end of the day before allocating the transaction to himself or a client. In some instances, Paris completed a purchase and sale on the same day before allocating the transactions. He treated those transactions as "day trades." In other instances, he left the position open and later allocated the purchase as a "multi-day trade."
Paris allocated a greater number of day trades to himself and a greater number of multi-day trades to client accounts. The day trades generated cumulative gains on the first day, while the multi-day trades generated cumulative first-day losses. Paris also allocated a disproportionate share of trades that generated first-day gains to himself and allocated a disproportionate share of first-day losing trades to clients.
As a result, Paris received a disproportionate share of first-day gains in certain securities during the relevant period, while clients received first-day losses from trades in those same securities. The disproportionate allocations generated $78,490 in excess first-day gains for Paris and disadvantaged the firm's advisory clients.
According to Bloomberg Law, Barrington did not review Paris's trading and allocations despite its representations to clients. The SEC therefore determined that Paris and Barrington breached their fiduciary duties and willfully violated Section 206(2) of the Investment Advisers Act of 1940. Section 206(2) prohibits an investment adviser from using the mails or any means or instrumentality of interstate commerce, directly or indirectly, to engage in a transaction, practice, or course of business that operates as a fraud or deceit upon a client or prospective client.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, sec sanctions, investment adviser, fiduciary duty, trade allocations, securities law
