A former bond manager has agreed to pay a $3 million civil penalty to resolve SEC allegations that he unfairly allocated profitable trades to favored portfolios while assigning losses to others.
The proposed settlement, announced October 6, 2026, requires court approval. Combined with a previous $100 million penalty against his former firm, the resolution would return $103 million to harmed investors, according to the SEC.
How the Alleged Cherry-Picking Worked
“Cherry-picking” occurs when an investment professional uses knowledge of trade performance to allocate favorable trades to certain accounts at others’ expense.
The SEC alleged that, from January 2021 through October 2023, the manager routinely delayed allocating trades until near or after daily settlement prices were established. This allowed him to observe price movements before deciding which portfolios received the trades.
According to the SEC, favored portfolios received hundreds of millions of dollars in first-day gains, while other portfolios received a similar amount in first-day losses.
Written Policies Did Not Prevent Supervisory Gaps
The manager’s former firm agreed in June 2026 to pay a $100 million penalty for compliance and supervisory failures.
The SEC found that the firm:
- Knew or should have known about the manager’s unusual allocation practices.
- Failed to adequately assess whether market movements influenced allocation decisions.
- Did not consistently follow documentation and approval procedures for trade reallocations.
These gaps persisted despite policies requiring fair allocations and training emphasizing prompt allocation after execution. The firm settled without admitting the SEC’s findings.
The manager’s proposed civil settlement includes:
- A $3 million civil penalty.
- An officer-and-director bar.
- An injunction against future antifraud violations.
He also agreed to a forthcoming associational bar without admitting the complaint’s allegations. Separately, he pleaded guilty in June to obstruction of justice related to false and misleading testimony during the SEC’s investigation.
What Compliance Teams Can Take Away
The case highlights three areas firms can review:
- Allocation timing: Monitor delays between trade execution and allocation, particularly when market movements could influence decisions.
- Fair treatment: Review allocation patterns for repeated gains in favored accounts and losses elsewhere.
- Supervisory follow-through: Document exceptions, enforce approval requirements, and apply oversight consistently across seniority levels.
Written allocation policies need to be supported by monitoring and follow-up. Firms should assess whether actual trading practices match their procedures and client disclosures.
