The Securities and Exchange Commission on Friday filed civil charges against a Los Angeles-based hedge fund manager and his investment advisory firm for running a 'cherry-picking' scheme, according to a press release from the agency.
The SEC charged Peter Eichler, Jr. and his fund Aletheia with violating fiduciary duties to clients by steering profitable trades into Aletheia's own accounts and into the accounts of preferred clients, as well as failing to inform investors in a timely manner when the firm ran into financial trouble.
"Aletheia and Eichler had an obligation to treat all clients with equal fairness, but instead they cherry-picked winners and losers and unfairly disadvantaged investors in two hedge funds to profit themselves," said Michele Wein Layne, director of the SEC's Los Angeles office.
Eichler's lawyer did not immediately respond to a request for comment.
According to the SEC's complaint, filed in federal court in California, Eichler traded options for Aletheia and also ran an investment advisory service through the firm. Eichler structured the firm so that options trades for the investment advisory service weren't allocated to a specific account until after they were executed.
The SEC alleged Eichler used the delay to separate winning trades from losing trades and put them in specific accounts held by Eichler and a few of his employees and special clients.
The $1.4 billion fund Aletheia is in bankruptcy proceedings. The state of California suspended its corporate status in October over $2 million in unpaid taxes and fines, according to the complaint.
The tax bill and the cost of dealing with long-running lawsuits against the firm destroyed its business, but Eichler did not disclose this to investors until just before it filed for bankruptcy in November - another breach of fiduciary duty, the SEC's complaint said.
The case is SEC vs. Aletheia Research and Management and Peter J. Eichler, Jr. in United States District Court, Central District of California, CV12-10692.
(Reporting By Emily Flitter; editing by Andrew)