The Securities and Exchange Commission (SEC) recently took action against a registered investment advisor based in Greenwich, Conn. The advisor, Jonathan Vincent Glenn, has been banned from the industry due to an alleged cherry-picking scheme. This scheme involved favoring certain accounts by allocating profits from successful trades to them while burdening other clients with the losses from unsuccessful trades.
According to the SEC, Glenn and his firm, GlennCap, engaged in this fraudulent practice between January 2020 and March 2022. They executed trades through an omnibus account and then fraudulently distributed the proceeds and losses among individual accounts.
It is important to note that Glenn settled the charges without admitting or denying any wrongdoing. He and his firm have not yet provided any comments on the matter.
In addition to the ban on associating with any registered investment advisor or broker-dealer, the SEC imposed a $500,000 civil penalty on Glenn. Moreover, Glenn has been ordered to disgorge more than $2.7 million and pay $250,000 in interest, resulting in a total monetary penalty of just under $3.5 million.
The SEC’s investigation revealed that Glenn conducted the cherry-picking scheme through a broker-dealer that executed trades on behalf of various clients, including his own firm and a separate account under his control. This misconduct highlights the importance of trust and accountability in the investment industry.
Glenn’s Alleged Scheme of Trade Allocation
The Securities and Exchange Commission (SEC) has accused Glenn of engaging in an unfair trade allocation practice in a settlement order. According to the SEC, Glenn allocated an unequal number of trades with positive first-day returns to certain preferred clients, while assigniing a disproportional number of trades with negative first-day returns to other client accounts.
To accomplish this scheme, Glenn executed block trades in GlennCap’s omnibus brokerage account and delayed the allocation of trades until later in the day. He waited to assess whether the positions had increased or decreased in value before allocating them to either favored or disfavored accounts.
Additionally, the SEC claims that Glenn made misleading statements about his firm’s trading activity in regulatory filings.
After 2020, Glenn allegedly directed all profitable trades to his firm, of which he was the sole owner, as well as another personal account.
The SEC points out that by waiting to allocate transactions after placing them, Glenn could observe how the positions performed throughout the day and then determine how to distribute them based on their increase or decrease in value. This allowed him to unfairly benefit certain clients while disadvantaging others.
It is crucial for regulatory bodies like the SEC to take action against such practices to ensure fair and transparent trading practices in the financial industry.
Alleged Scheme Disrupted in 2022
The alleged scheme orchestrated by Glenn supposedly reached its culmination in March 2022. At this point, Glenn’s broker-dealer noticed suspicious trading activity and promptly terminated access to the omnibus account. In response, Glenn purportedly advised his clients to transfer their accounts to another broker-dealer. However, this new firm had strict regulations in place, forbidding advisors from utilizing omnibus trading accounts. Consequently, the Securities and Exchange Commission (SEC) claims that Glenn and his firm have been unable to partake in the advantageous practice of cherry-picking profitable trades since March 2022.
