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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22616 / February 12, 2013

Securities and Exchange Commission v. Howard Brett Berger and Michelle Berger, CV-12 4728 (E.D. N.Y. September 21, 2012)

SEC Obtains Judgment Against Investment Adviser In Connection With Cherry-Picking Scheme

The United States Securities and Exchange Commission (“Commission”) announced that on January 15, 2013, a final judgment was entered by consent against Howard B. Berger (“Berger”), permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder, in the civil action entitled Securities and Exchange Commission v. Howard B. Berger, et al., Civil Action Number CV-12 4728, in the United States District Court for the Eastern District of New York.  The Commission filed its complaint against Berger on September 21, 2012, charging Berger with securities fraud and investment adviser fraud.  Berger was a founder and manager of Professional Traders Management, LLC and Professional Offshore Traders Management, LLC, which managed and acted as investment advisers for hedge funds Professional Traders Fund, LLC (“PTF”) and Professional Offshore Opportunity Fund (“POOF”).   

The Commission’s complaint alleged that, from July 2008 through early March 2010, Berger engaged in a fraudulent trade allocation scheme commonly referred to as “cherry-picking.”  Specifically, the complaint alleged that Berger oftentimes cherry picked profitable trades from PTF, one of two hedge funds Berger managed, and allocated the trades to his wife’s brokerage account.  In addition, Berger oftentimes allocated unprofitable trades to PTF and POOF.  The Commission alleged that Berger and his wife’s account reaped substantial profits of at least $6.8 million in ill-gotten gains from the cherry-picking scheme.  Berger’s wife, Michelle Berger, is named as a relief defendant in the Commission’s complaint because she received illegal trading profits Berger generated from his scheme.

The Commission alleged that Berger violated Section 10(b) of the Exchange Act and Rule 10b-5, thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8, thereunder.

Berger and Michelle Berger consented to the entry of the injunctive order without admitting or denying the allegations in the Commission’s complaint.  The order, among things, provides for the following relief:

  1. Enjoins Berger from violating the anti-fraud provisions of the securities laws (Section 10(b) of the Exchange Act and Rule 10b-5, thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8, thereunder); and
     
  2. Orders that Berger and Michelle Berger are jointly and severally liable for, and shall pay, disgorgement of $5,399,456.16; and that Berger is liable for, and shall pay, an additional $1,433,521.84 of disgorgement, $22,776 of prejudgment interest, and a $50,000 civil money penalty.

Separately, Berger also consented to administrative proceedings barring him from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent.

The SEC acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) in this case. The SEC's investigation was conducted in the Miami Regional Office by Senior Counsel Terence M. Tennant and accountant Tonya E. Tullis under the supervision of Assistant Regional Directors Elisha L. Frank, Chad A. Earnst, and Eric R. Busto. Senior Trial Counsel Christopher E. Martin led the litigation.

http://www.sec.gov/litigation/litreleases/2013/lr22616.htm

Modified: 3/7/2013