Former California RIA barred, slapped for $1.2 million by SEC

A U.S. District Court in California has entered a settled final judgment against the defunct Strong Investment Management and its owner, Joseph B. Bronson, both of whom the SEC charged previously with securities fraud for their involvement in a “cherry-picking” scheme.

The Securities and Exchange Commission also filed a settled administrative proceeding against Mr. Bronson, who has agreed to a permanent bar.

In addition, the firm and Mr. Bronson were held jointly and severally liable for disgorgement in the amount of $960,656, plus prejudgment interest of $100,501. Mr. Bronson was separately ordered to pay a civil penalty in the amount of $184,767. The court also authorized the SEC to create a fund to distribute any payments to the victims of the fraud.

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The SEC’s complaint against the firm and its owner alleged that for more than four years, Mr. Bronson traded securities in Strong’s omnibus account but delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day.

As alleged, he reaped substantial profits at his clients’ expense by cherry-picking the trades, disproportionately allocating profitable trades to himself and unprofitable trades to clients. The complaint also alleged that the firm and Mr. Bronson misrepresented their trading and allocation practices on the firm’s Forms ADV.

Mr. Bronson’s brother and the firm’s former chief compliance officer, John Engebretson, was also charged in the complaint with failing to perform his compliance responsibilities and ignoring numerous “red flags” raised during the course of the fraudulent scheme. As part of the settlement, Mr. Engebretson agreed to be enjoined, pay a civil monetary penalty in the amount of $15,000 and be barred.

Related Topics: Securities and Exchange Commission