A former adviser has chosen to trade, favoring personal accounts held by him and his wife to the detriment of clients, according to the Securities and Exchange Commission.
Commission accused Spartanburg, SC-based Eric Cobb with clients he allegedly defrauded while he was a representative at SeaCrest Wealth Management, located in Purchase, NY. The SEC also settled charges against the firm.
“The enforcement action against SeaCrest demonstrates the importance of decentralized firms having strong compliance oversight regarding employees who may be located elsewhere,” said Sheldon Pollock Regional Director of the SEC's New York Regional Office.
According to SEC dataCobb first joined Merrill Lynch in 1996, where he stayed for 11 years. After a five-year stint at Morgan Stanley, he was registered with Raymond James for nearly two years before being fired in February 2016 for “violations of FINRA's firm policy and rules regarding communications with the public.” He began working with SeaCrest soon after.
During his time at SeaCrest, Cobb used an aggregate or “block” account for clients to trade more than 86% of the approximately $55.3 million he invested in his own and clients' accounts, but he often waited one to two days after b. Execution of trades of /d before distribution of trades from general account to client accounts.
“In this way, Cobb created for himself the opportunity to see whether the trades he placed were profitable or unprofitable at the time he split those trades between Cobb accounts and client accounts,” the complaint said.
Cobb would then disproportionately place profitable trades in his own account while placing less profitable trades in client accounts, according to the commission.
Of the 194 trades allocated by Cobb to accounts held by him or his wife, 147 were profitable at the time they were allocated (over 75%), while of the 5,537 trades allocated to client accounts, only 2,378 were profitable (about 43 %) . Cobb focused on ETFs and securities that included the precious metals and mining industries to increase his profits.
“The volatility of these securities maximized Cobb's opportunity to grab quick profits between the time the trades were executed and the delayed time he chose to distribute them between Cobb and client accounts,” the complaint said.
According to the commission, the scheme netted him about $170,110 in profits. The SEC alleged that Cobb was notified in May 2020 that the firm's b/w and SeaCrest's chief compliance officer were “concerned” that he was taking trades due to delayed allocations. According to the complaint, Cobb slowed down the scheme significantly after becoming aware that his trades were being monitored.
According to the commission, the CCO confronted Cobb on May 4 by phone about the eb/d concerns, and Cobb denied that he was cherry-picking or “otherwise not favoring” customers.
In a later letter, Cobb admitted to delaying the delivery of trades, but said he “never intentionally put any of my clients at a disadvantage.”
However, by 2022, SeaCrest decided to sever its ties and terminate Cobb's relationship with the firm due to concerns that he was cherry-picking trades, according to the commission.
As part of the SEC's investigation, the SEC went to court earlier this year to oblige Cobb comply with a subpoena, including the production of documents and evidence. The commission is seeking a permanent injunction against Cobb and civil penalties.
The SEC's settlement with SeaCrest found that the firm “willfully violated” the anti-fraud and record-keeping provisions of the securities laws while failing to supervise Cobb. The firm did not admit or deny the findings, but agreed to pay $375,000 to settle the allegations. Neither Cobb nor SeaCrest could be reached for comment ahead of publication.