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SEC Charges Investment Adviser With Mispricing Cross Trades Between Clients

Aug. 10, 2018

ADMINISTRATIVE PROCEEDING
File No. 3-18636

August 10, 2018 - The Securities and Exchange Commission today announced charges against a New York-based investment adviser charged with engaging in cross trading that favored certain advisory client accounts over others.

According to the SEC’s order, Hamlin Capital Management, LLC executed over 15,000 cross trades of thinly traded, tax exempt municipal bonds, moving them from one client account to another. But Hamlin arranged that its cross trades be executed at the securities’ bid price, instead of the midpoint between the bid and the ask price, resulting in the undisclosed allocation of all market savings on these trades to Hamlin’s buying clients. As a result of this conduct, Hamlin deprived its selling clients of $414,672 in market savings.

The SEC’s order also finds that Hamlin persuaded certain broker-dealers to adjust their price quotations for seven municipal bonds held in client portfolios to levels substantially above where the bonds had most recently traded in the market. Hamlin did not document any rationale for these upward adjustments. Hamlin subsequently executed approximately 21 cross trades in these seven bonds at these inflated levels, causing buying advisory clients in these transactions to overpay for the bonds by $194,500.

The SEC’s order finds that Hamlin violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8 thereunder. Without admitting or denying the findings, Hamlin agreed to reimburse $609,172, plus interest, to its affected clients and pay a $900,000 penalty to the SEC. Hamlin also agreed to a censure and cease-and-desist order.

The SEC’s investigation was conducted by Jorge G. Tenreiro, David Zetlin-Jones, Michael Fioribello and Sandeep Satwalekar of the New York Regional Office along with Jonathan Wilcox of the Public Finance Abuse Unit, and supervised by Lara Shalov Mehraban. The SEC appreciates the assistance of FINRA.

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