SEC Charges Investment Advisers with Cherry Picking, Obtains Asset Freeze
Securities and Exchange Commission v. Ramiro Jose Sugranes, UCB Financial Advisers, Inc. and UCB Financial Services Limited, No. 1:21-cv-22152-MGC (S.D. Fl. filed June 10, 2021)
The Securities and Exchange Commission has obtained an asset freeze and other emergency relief, and filed fraud charges, against a Miami, Florida investment professional and two investment firms for engaging in an alleged "cherry picking" scheme in which they channeled millions of dollars in trading profits to preferred accounts.
According to the SEC's complaint, which was filed under seal in federal court in the Southern District of Florida on June 10, 2021 and unsealed on June 17, 2021, since at least September 2015, defendants Ramiro Jose Sugranes, UCB Financial Advisers, Inc., and UCB Financial Services, Limited engaged in a scheme to divert profitable trades to two accounts believed to be held by Sugranes' relatives and to saddle other clients with losing trades. The defendants allegedly used a single account to place trades without specifying the intended recipients of the securities at the time they placed the trades. As alleged, after defendants established a position, if the price of the securities increased during the trading day, the defendants usually closed out the position and allocated those profitable trades to the two preferred accounts. Conversely, the complaint alleges that if the price of the securities decreased during the trading day, the defendants usually allocated the unprofitable trades to other client accounts. According to the complaint, the preferred clients, who are named as relief defendants, received approximately $4.6 million from profitable trades while other clients sustained more than $5 million in first day losses.
The SEC's complaint charges Sugranes and the two UCB entities with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties. The complaint also names the preferred clients as relief defendants and seeks to recover their unlawful gains and prejudgment interest. On June 14, 2021, the court granted the SEC's request for emergency relief, including an asset freeze, accounting, and expedited discovery.
The SEC's investigation, which is ongoing, stems from the SEC Market Abuse Unit's Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns, including improbably successful trading. The investigation is being conducted by Jeffrey E. Oraker, Daniel M. Konosky, and Helena Engelhart Bean of the Market Abuse Unit and Denver Regional Office, with assistance from John Rymas of the Market Abuse Unit and Stuart Jackson and Joshua Mallet of the SEC's Division of Economic and Risk Analysis. The investigation is supervised by Danielle R. Voorhees and Joseph G. Sansone. The SEC's litigation will be led by Christopher E. Martin and Mark L. Williams, under the supervision of Gregory A. Kasper.