Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, September 9, 2008

SEC Charges Investment Adviser with Cherry-Picking

The SEC filed a civil complaint in the Southern District of New York charging James C. Dawson with securities fraud and investment adviser fraud. Dawson is the investment adviser to a hedge fund, Victoria Investors, LP, and to individual clients.  The SEC alleges that from April 2003 through October 2005, Dawson cherry-picked profitable trades for his own account by purchasing securities throughout the day in one single account, and delaying the allocation of the purchases until later in the day, after he saw whether the securities appreciated in value. Between April 2003 and October 2005, Dawson allocated approximately 400 trades to his personal account, approximately 393 of which were profitable on the first day, for a success rate of approximately 98%. In contrast, of the 2,880 trades Dawson allocated to his clients during the same time, only 1,489 were profitable on the first day for a success rate of approximately 52%. The Commission's complaint also alleges that Dawson used Victoria Investors' funds to pay for personal and family expenses.

In its lawsuit, the Commission seeks an order permanently enjoining Dawson from violations of the above provisions of the federal securities laws. The Commission also seeks disgorgement, plus prejudgment interest, and civil penalties against Dawson.

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