U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20707 / September 9, 2008
SEC v. James C. Dawson, 08 Civ.7841 (SDNY) (WCC)
SEC Charges Investment Adviser With Cherry-Picking
The Securities and Exchange Commission filed a civil complaint today in the Southern District of New York charging James C. Dawson with securities fraud and investment adviser fraud. Dawson, 63, of Rye, New York, is the investment adviser to a hedge fund, Victoria Investors, LP, and to individual clients.
The Commission's complaint alleges the following. From April 2003 through October 2005, Dawson cherry-picked profitable trades for his own account, thereby harming his clients and unjustly enriching himself at their expense. Dawson orchestrated this cherry-picking scheme by purchasing securities throughout the day in one single account, and delaying the allocation of the purchases until later in the day, after he saw whether the securities appreciated in value. Between April 2003 and October 2005, Dawson allocated approximately 400 trades to his personal account, approximately 393 of which were profitable on the first day, for a success rate of approximately 98%. In contrast, of the 2,880 trades Dawson allocated to his clients during the same time, only 1,489 were profitable on the first day for a success rate of approximately 52%. Dawson did not tell his clients — Victoria Investors or his individual clients — about his cherry-picking scheme.
The Commission's complaint also alleges that Dawson used Victoria Investors' funds to pay for personal and family expenses. Dawson did not disclose to Victoria Investors that he was using Victoria Investors' assets to pay for his personal expenses.
The Commission alleges that Dawson violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In its lawsuit, the Commission seeks an order permanently enjoining Dawson from violations of the above provisions of the federal securities laws. The Commission also seeks disgorgement, plus prejudgment interest, and civil penalties against Dawson.