The Securities and Exchange Commission announced Tuesday that the U.S. District Court for the Central District of California entered a final judgment against former investment advisor Strong Investment Management and its owner, Joseph B. Bronson, in connection with an alleged “cherry-picking” scheme.
Strong and Bronson agreed to pay disgorgement of $960,656 and prejudgment interest of $100,501. Bronson was separately ordered to pay a civil penalty of $184,767.
The SEC alleged in its complaint in February 2018 that from January 2012 to October 2014, Bronson traded securities in Strong’s omnibus account but delayed allocating them to client accounts until he had determined how they performed over the course of the day. He then “cherry-picked” the trades—allocating profitable trades to himself and unprofitable ones to his clients. The SEC also alleged that Bronson then falsely stated on Strong’s ADV that all trades would be allocated according to pretrade allocation statements and that Strong did not favor any account, including those of firm personnel.
John Engebretson, Strong’s former chief compliance officer and Bronson’s brother, was charged with failing to perform his compliance responsibilities and ignoring “red flags” while the scheme was ongoing. He agreed to pay a civil penalty of $15,000.
Bronson and his brother are the second generation of Engebretsons to have run afoul of the SEC. In September 1999, their father, Lester Engebretson, and his investment advisory firm, Engebretson Capital Management, agreed to a cease and desist order, censure and a $150,000 penalty in connection with SEC allegations that they distributed “misleading advertising materials that overstated ECM’s annual performance and violated certain books and records requirements.”
As of December 31, 2017, Strong had 65 clients with assets under management of $58 million. The firm shut its doors on August 26.
