SEC charges North East Asset Management Group and its principal for cherry-picking scheme
The Securities and Exchange Commission (SEC) has announced settled charges against investment adviser, North East Asset Management Group, Inc., and its principal, Gregory A. Zandlo, for defrauding advisory clients through an eighteen-month cherry-picking scheme.
Cherry-picking is the fraudulent practice of preferentially allocating profitable trades or failing to allocate unprofitable trades to an adviser’s personal and favored accounts at the expense of the adviser’s other client accounts.
According to the SEC’s order, from December 2020 through May 2022, Zandlo and his wholly owned investment adviser, North East, disproportionately allocated profitable trades to Zandlo’s own accounts, Zandlo’s family members’ accounts, and North East’s account, and allocated unprofitable trades to seventy-eight other North East advisory client accounts.
The SEC’s order finds that, during this eighteen-month period, 91% of the dollars traded in the favored accounts saw a positive return at the end of the trading day, while only 31% of the dollars traded in other client accounts had a positive return at the end of the trading day. The favored accounts received profits of approximately $105,820, while the other client accounts suffered losses of approximately $112,667, according to the SEC’s order.
The SEC’s order charges Zandlo and North East with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
Without admitting or denying the SEC’s findings, Zandlo and North East each consented to the entry of a cease-and-desist order; North East agreed to pay disgorgement of $10,609 and prejudgment interest of $2,260; and Zandlo agreed to pay disgorgement of $80,559, prejudgment interest of $17,172, and a civil penalty of $141,000.
Zandlo also consented to an associational bar, and North East consented to a censure.