Securities Law Prof Blog

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

Tuesday, December 15, 2009

SEC and Former COO of Ark Asset Management Settle Trade Allocation Charges

The SEC and Stephen Jay Mermelstein settled charges under the Investment Advisers Act that Mermelstein, the former Chief Operating Officer of a formerly registered investment adviser, Ark Asset Management, Co., Inc. (Ark), failed reasonably to supervise a portfolio manager who engaged in fraudulent trade allocation practices during the years 2000 through 2003. As a result of this fraudulent conduct, Ark realized at least $19 million of ill-gotten gains.  The SEC's order suspends Mermelstein from association in a supervisory capacity with any investment adviser for a period of six months and orders Mermelstein to pay a civil penalty of $50,000. 

In a related proceeding, the SEC instituted an administrative proceeding against against Ark Asset Management Co., Inc. (Ark). It alleges that Ark engaged in fraudulent trade allocation practices by favoring certain proprietary accounts over certain client accounts in the allocation of securities between 2000 and 2003 and realized at least $19 million of ill-gotten gains in the form of performance fees from the proprietary accounts. Additionally, Ark's Form ADV filings during the relevant period were materially misleading. Ark also committed books and records violations by failing to make and keep true and accurate order memoranda.

Based on the above, the Order directs that a public hearing shall be convened at a time and place to be fixed not earlier than 30 days nor later than 60 days after service of the notice before an Administrative Law Judge to take evidence and determine whether the allegations are true, and that an Administrative Law Judge shall issue an initial decision within 300 days of the date of service of the Order. (Rel. IA-

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