SEC Obtains Asset Freeze to Stop Alleged Cherry-Picking Scheme

The US Securities and Exchange Commission (SEC) has obtained an asset freeze in an effort to stop an alleged “cherry-picking” scheme in which a Miami-based investment adviser is accused of channeling millions of dollars in trading profits to preferred accounts believed to be held by his parents. The SEC also filed fraud charges against the investment adviser, Ramiro Jose Sugranes.

According to the SEC’s unsealed complaint, which was filed in the Southern District of Florida, Sugranes has allegedly been conducting a scam for more than five years in which he has diverted profitable trades to two accounts believed to be held by his parents, while dumping losing trades with other clients. Sugranes conducted the alleged fraud through investment firms UCB Financial Advisers Inc. and UCB Financial Services Limited, where he is a part owner and executive director, respectively.

“This scheme is ongoing,” the regulator said in the complaint. “The SEC brings this enforcement action to stop this fraud and return the ill-gotten gains to the harmed investors.”

The SEC says Sugranes has been carrying out the cherry-picking scheme by using an average price trading account to purchase stocks and options on behalf of client accounts. He then allegedly allocates those trades to specific accounts, typically later that day. If the position increases in value during that day, the position is usually closed out to lock in the same-day profit. In those cases, the corresponding profits are allocated to so-called “preferred accounts” that are held by an elderly couple who are presumed to be either Sugranes’ parents or close relatives, who were also named as relief defendants.

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According to the complaint, the alleged scheme funneled approximately $4.6 million in illicit profits to the preferred accounts, and negatively impacted at least 75 non-preferred accounts that took first day losses. The SEC says the non-preferred accounts were allocated more than $5.5 million of first day losses, and that 16 of them suffered more than $25,000 in first day losses, with two sustaining more than $1 million in first day losses. The agency added that the odds that random chance could account for this difference in first-day profits and losses is less than one in a billion.

The regulator said the investigation originated from its Market Abuse Unit’s Analysis and Detection Center, which uses data analysis tools to detect suspicious patterns, such as improbably successful trading.

“The SEC uses sophisticated analytical tools to ferret out investment professionals who abuse their positions to engage in cherry-picking and other fraudulent conduct,” Joseph Sansone, chief of the SEC Enforcement Division’s Market Abuse Unit, said in a statement.

The SEC is seeking permanent injunctions and a conduct-based injunction against Sugranes, as well as disgorgement of Sugranes and the relief defendants’ ill-gotten gains from the unlawful activity alleged in the complaint.

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Tags: Ramiro Jose Sugranes, SEC, Securities and Exchange Commission cherry picking, UCB Financial Advisers Inc., UCB Financial Services

So maybe an investment-friendly economic recovery and low inflation (after a brief spike due to reopening supply bottlenecks) aren’t happening. That’s the dour view of hedge fund magnate Ray Dalio and economist Larry Summers.

Federal Reserve tightening is necessary, due to higher-than-expected inflation, but interest rate rises could have nasty results in the markets, warned Dalio, who heads Bridgewater Associates, the world’s largest hedge fund firm. The larger economy will feel it, he added.

“Just the slightest touching on those brakes has the effect of hurting markets,” he said at a conference in Qatar, “because of where they’re priced, and also passing through to the economy.”

Summers, the former Treasury secretary who appeared with Dalio, agreed and depicted the inflation level as worrisome. “Much of the consensus of professional forecasters in February was that we would have inflation just above 2% this year,” said Summers, now a Harvard professor. “We’ve already had more inflation than that in the first five months of the year.”

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The Consumer Price Index (CPI) accelerated at 5% as of May, versus 12 months before, its most torrid pace in 13 years.

Central bank officials contend that the current hike is the result of temporary factors that will abate as the year goes on. In congressional testimony Tuesday, Fed Chair Jerome Powell conceded that inflation had “increased notably in recent months.” Nonetheless, he continued, the higher-than-expected CPI report “reflects, in part, the very low readings from early in the pandemic falling out of the calculation,” along with oil-price increases, reopening effects, and supply-chain constraints.

Dalio was more downbeat. “It’s easy to say that the Fed should tighten, and I think that it should,” he said at the Qatar confab. “But I think you’ll see a very sensitive market, and a very sensitive economy because the duration of assets has gone very, very long.”

Powell surprised markets last week by speeding up the Fed’s timeline for potential rate hikes. The central bank pegged inflation at 3.4%, higher by a full percentage point than its previous forecasts. It also projected for the first time that there could be two interest rate raises in 2023. And the Fed also disclosed that it is starting to consider paring back its $120 billion in monthly bond purchases.

These developments drew a backhanded compliment from Summers. “I welcome the Fed’s limited efforts to mark its views toward reality and a growing awareness that this overheating is likely to necessitate a monetary policy response,” he said. “People should not just modify their forecasts, but should think about what their errors of thinking were that led them to be so far off in their forecasts.”

Dalio, for his part, said he’s less worried about the CPI than he is about overpriced financial assets. The S&P 500 ended a four-day slide on Monday. “There’s a massive amount of liquidity around, and it’s being thrown around so that it’s a difficult environment for those returns to be justified,” Dalio said. “I think we’re building kind of a bubble.”

And fixed income is part of that, too, he opined. With US deficits set to expand enormously, Washington must “sell a lot of bonds” despite their low interest rates and negative real, or inflation-adjusted, inflation rates, Dalio said.