The Securities and Exchange Commission announced recently that a final judgement has been entered against Carl S. Schwartz, president, coowner, and managing director of RRBB Asset Management, LLC. The U.S. District Court for the District of New Jersey handed down the judgement on May 9, 2019.
The SEC’s complaint was filed by the SEC on September 10, 2020. It alleged that Schwartz RRBBAM had been involved in a fraud trade allocation scheme. “cherry-picking.” The scheme was said have occurred between August 2016, and April 2017, and they were in violation of the fiduciary obligations to their advisory clientele.
Schwartz, according to the complaint would trade securities on RRBBAM’s omnibus account and then delay allocating the funds to specific accounts until he observed their performance during the day. Schwartz, it is alleged, would allocate favorable trades for RRBBAM to a client who was a large and lucrative client. Schwartz, however, allegedly allocated unfavorable trading to six accounts that were associated with two widows. The complaint also alleged that RRBBAM, Schwartz, and their employees earned substantial management fees as a result of this scheme. They also misrepresented the allocation of trades to all accounts in their brochures.
Schwartz, without admitting or disputing the allegations, consented to an entry of a judgment final that permanently prohibited him from violating securities laws. This included Section 10(b), Rule 10b-5, Section 17(a), Securities Act of 1933 and Sections 206.1, 206(2) and 207 of Investment Advisers Act of 40. He was also found guilty of aiding in the violation of Section 206(4) Advisers Act, and Rule 206(4)-7. Schwartz was also ordered to pay disgorgement in the amount of $50,000.00 and prejudgment interests of $13,754.13 as part of his judgment.
RRBBAM has also been dismissed from the case as it no longer operates, has no assets and has withdrawn registration with the SEC to act as an investment adviser.
Matthew Montgomery led the SEC’s probe into this case and was assisted by Eugene Orlov and Raymond Wolff of the Division of Economic and Risk Analysis. Donald Searles was in charge of the litigation and Gary Leung supervised it. Erin Smith and Eugene Canjels of the Division of Economic and Risk Analysis assisted.
This case serves to remind the SEC of its commitment to protect investors and ensure the integrity in the securities markets. Schwartz, RRBBAM and their fraudulent trade-allocation scheme not only violated fiduciary obligations but also undermined trust and confidence among their clients. The SEC’s enforcement action sends out a clear signal that fraud and misconduct will not tolerated.
When selecting an investment advisor, investors should be very careful and do thorough research on their background. Working with professionals who place a high priority on transparency, ethics, and their clients’ best interests is crucial. To protect themselves and others, those who suspect fraud or unethical conduct should also report this to the SEC.
Overall, the case shows the importance to maintain a strong regulatory structure and a robust enforcement program in order to protect investors and safeguard the integrity and security of the financial market. It is crucial that the SEC maintains its vigilance in upholding these principles to ensure the integrity of the financial markets and level playing fields for all participants.
Recover Investment Losses
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SEC
Securities and Exchange Commission is the regulatory agency of the United States. Its primary responsibility is to protect investors and maintain fair and orderly market conditions. It does this by performing several key tasks:
1. Enforcement of Securities Laws. The SEC enforces securities laws in the United States by investigating and prosecuting companies and individuals who engage in fraudulent activity or violate securities regulations. It pursues legal actions against anyone who attempts to manipulate the market or engages in insider trade.
2. The SEC regulates and oversees the securities industry. This includes securities exchanges and brokers, as well as investment advisors and mutual funds. It promotes transparency, ensures compliance with regulatory requirements, and sets financial reporting standards to protect investors.
3. Disclosure Requirements. The SEC mandates companies to publicly disclose relevant non-financial and financial information to investors. These include periodic reports such as quarterly and annual filings that provide accurate and timely data to investors for making informed investment decisions.
4. Investor Education and Advocacy. The SEC strives to empower and educate investors on a variety of investment topics by providing them with educational resources, guidance, and tools. The SEC educates the public on potential risks, investment frauds, and ways to avoid being a victim of fraudulent schemes. The SEC also facilitates the resolution and settlement of investor disputes.
5. SEC Rulemaking: SEC creates and implements regulations and rules to regulate the securities industry. It monitors continuously market trends and practices. Regulations are adapted to protect investors and address new threats.
The SEC is a vital player in protecting investor interests, promoting fair market conditions, and maintaining the integrity of U.S. Securities Industry.
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