Tuesday, February 27, 2007
On February 26, the SEC instituted proceedings against Melhado, Flynn & Associates, Inc. (MFA), George M. Motz (Motz) and Jeanne McCarthy (McCarthy), alleging that, from at least January 2001 through April 2005, George M. Motz, the President, CEO and Chairman of the Executive Committee of MFA, engaged in fraudulent trade allocation - "cherry-picking" - at MFA, a registered investment adviser and broker-dealer. During the initial period of the scheme, from at least January 2001 until approximately September 2003, Motz allegedly unfairly allocated trades that had appreciated in value during the course of the day to MFA's proprietary trading account and allocated purchases that had depreciated in value during the day to the accounts of his advisory clients. Beginning in the summer of 2003, Motz allegedly engaged in cherry- picking to favor one of the firm's advisory clients, a hedge fund affiliated with MFA, over his other advisory clients. In addition, in the fall of 2003, Motz, with the assistance of McCarthy, altered order tickets in an attempt to cover-up these fraudulent trade allocations. As a result of this fraud, MFA realized ill-gotten gains of approximately $1.4 million. In addition, MFA and Motz earned commissions and fees from advisory clients who were disadvantaged by the cherry-picking scheme.