SEC Charges Connecticut Advisory Firm GlennCap and Owner with Cherry-Picking

The U.S. Securities and Exchange Commission (SEC) has announced a significant enforcement action against GlennCap LLC, a Connecticut-based investment advisory firm, and its owner, Jonathan Vincent Glenn. The charges stem from allegations of fraudulent activities, specifically the unfair allocation of securities trades, a practice commonly referred to as "cherry-picking."

According to the SEC's findings, between January 2020 and March 2022, Jonathan Vincent Glenn, who served as an investment adviser representative of GlennCap, engaged in a deceptive trading practice known as cherry-picking. This unethical practice involved the allocation of profitable securities trades to favored accounts, including those owned by GlennCap and clients who paid higher fees based on positive returns. Conversely, Glenn allocated an imbalanced amount of unprofitable trades to disfavored clients.

The SEC's investigation revealed that Glenn utilized block trading, which enabled him to pool funds from multiple client accounts into trades. After observing whether a position increased or decreased in value, he selectively directed the more profitable trades towards the accounts he favored. The statistical likelihood that these favored accounts received the more profitable trades by chance was nearly non-existent.

The SEC's order also disclosed that Glenn and GlennCap reaped substantial profits amounting to at least $2.7 million from this cherry-picking scheme. Additionally, the order found that Glenn had disseminated false and misleading information about GlennCap's trading practices in documents provided to clients and prospective clients.

Commenting on the case, Andrew Dean, Co-Chief of the SEC Enforcement Division's Asset Management Unit, stated, "Glenn allocated millions of dollars from profitable trades to accounts benefitting himself while unloading unprofitable trades on GlennCap's clients. The SEC has the means to identify investment advisers that abuse their position through cherry-picking, as Glenn and GlennCap did. We use these methods to ensure investor trust in our markets."

The SEC's order concludes that both Glenn and GlennCap violated various securities laws, including Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

As part of the settlement, Glenn and GlennCap have consented to a cease-and-desist order without admitting or denying the SEC's findings. They are required to pay over $3 million in civil penalties, disgorgement, and prejudgment interest.

This enforcement action underscores the SEC's commitment to maintaining the integrity and fairness of financial markets and serves as a stark reminder to investment advisers and firms that fraudulent practices, such as cherry-picking, will not be tolerated.