Aug 7 A Securities and Exchange Commission judge
has ordered a San Diego-based investment firm to pay a $15
million penalty and barred its two advisers from the securities
industry for a scheme that defrauded clients out of $10.9
Chief Administrative Law Judge Brenda P. Murray ruled that
J.S. Oliver Capital Management LP and the two advisers, who
included the firm's founder, breached their responsibilities to
act in their clients' best interests and committed other
securities law violations.
Murray ruled that the firm and advisers had engaged in
"cherry-picking," or awarding more profitable trades to favored
clients. They had also misused "soft dollars," or credits from
brokerage firms on commissions that investment advisers' clients
pay for trades, according to a 64-page opinion dated Tuesday.
J.S. Oliver Capital Management must also pay $1.4 million in
disgorgement, a type of penalty that effectively forces those
who have engaged in wrongdoing to give up profits they obtained
through their misconduct. The firm's founder, Ian O. Mausner,
must also pay a $3 million penalty, in addition to being barred
from the securities industry.
The firm's portfolio manager, Douglas F. Drennan, was also
barred from the securities industry and fined $410,000.
A phone number for J.S. Oliver Capital Management was not in
working order on Thursday. Mausner, who defended himself and the
company, did not immediately respond to a message sent to him
through LinkedIn. Other efforts to reach him were unsuccessful.
Drennan and his lawyer did not immediately return calls
The SEC filed its action against J.S. Oliver Capital
Management in August, 2013, alleging that Mausner awarded more
profitable trades to hedge funds in which Mausner and his family
had invested. The SEC said less profitable trades were given to
other clients, including a widow and a charitable foundation.
The cherry-picking scheme occurred between 2008 and 2009, it
The firm managed about $142 million in 2008, according to
The decision said J.S. Oliver Capital Management and Mausner
also misused $1.1 million in soft dollars for expenses that did
not benefit clients, such as a $215,000 payment to Mausner's
ex-wife related to their divorce and $40,000 for Masuner's
luxury timeshare expenses.
Investment advisory firms may use soft dollars to pay for
certain limited expenses that benefit clients as long as they
properly disclose that information. The firm and Mausner had
argued that they informed their clients of the soft dollar uses
in regulatory forms but the SEC found the disclosures inadequate
and, in at least one instance, false.
Drennan, the portfolio manager, "aided and abetted" some of
the soft dollar misuses, Murray ruled.
The firm, Mausner and Drennan "betrayed their fiduciary
responsibilities in a blatant, self-serving manner" and were not
credible witnesses, Murray wrote.
(Reporting by Suzanne Barlyn; Editing by David Gregorio)