SEC Charges Investment Adviser with Unfair Trade Allocation and Compliance Failures
July 31, 2020
File No. 3-19898
July 31, 2020 - The Securities and Exchange Commission today announced settled charges against Birinyi Associates, Inc., a registered investment adviser based in Connecticut, for unfairly allocating trades to certain advisory clients and failing to have an adequate compliance program with respect to trade allocation.
According to the SEC's order, from at least June 2014 to June 2019, Birinyi Associates generally made block trades of equity securities in a master account at a third-party brokerage firm and then allocated those transactions to individual client accounts according to pre-trade plans. The order finds that during this period, while the majority firm clients primarily followed a buy-and-hold strategy for longer-term investment, Birinyi Associates had a small group of clients whose strategy was limited to day trading. According to the order, Birinyi Associates executed trades in the master account and monitored the price of the security. The order finds that Birinyi Associates sometimes allocated trades where a security's price increased during the trading day to the day-trading clients rather than hold the stock for investment by the clients that followed the buy-and-hold strategy. The order finds that this allocation practice was unfair to certain advisory clients and inconsistent with the firm's disclosures and internal policies. In addition, according to the order, Birinyi Associates failed to adopt and implement written compliance policies and procedures reasonably designed to prevent such unfair trade allocation.
The order finds that Birinyi Associates violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the SEC's findings, Birinyi Associates consented to a cease-and-desist order and a censure, and agreed to pay a civil penalty of $100,000. Birinyi Associates also agreed to comply with certain undertakings, including the retention of an independent compliance consultant.
The SEC's investigation was conducted by Cynthia Storer Baran, Gregory C. Padgett, and Robert Baker of the SEC's Asset Management Unit, with the assistance of Stuart Jackson and Ross Goetz in the Division of Economic and Risk Analysis.