Markets Wired

On August 21, 2019, the U.S. District Court for the Central District of California entered a settled final judgment against a former Orange County investment adviser firm Strong Investment Management (Strong) and its owner, Joseph B. Bronson, both of whom the SEC previously charged with securities fraud for their involvement in a “cherry-picking” scheme. Today, the Securities and Exchange Commission filed a settled administrative proceeding against Bronson, who has agreed to the issuance of an SEC order permanently barring him from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or national recognized statistical rating organization.

The SEC’s complaint against Strong and Bronson, filed on February 20, 2018 in the U.S. District Court for the Central District of California, alleges that for more than four years, Bronson traded securities in Strong’s omnibus account but delayed allocating the securities to specific client accounts until he had observed the securities’ performance over the course of the day. As alleged, Bronson reaped substantial profits at his clients’ expense by “cherry picking” the trades, disproportionately allocating profitable trades to himself and unprofitable trades to Strong’s clients. The complaint also alleged that Strong and Bronson misrepresented their trading and allocation practices in the firm’s Forms ADV, including by falsely stating that all trades would be allocated in accordance with pre-trade allocation statements and that the firm did not favor any account, including those of the firm’s personnel.

In the final judgments against Strong and Bronson, they both are permanently enjoined from violating the antifraud provisions of Sections 17(a)(l) and 17(a)(2) of the Securities Act of 1933, Section l0(b) of the Securities Exchange Act of 1934 and Rule l0b-5 thereunder, Sections 206(1), 206(2), 206(4), 207 of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder. In addition, Strong and Bronson were ordered jointly and severally liable for disgorgement in the amount of $960,656, plus prejudgment interest thereon in the amount of $100,501. Bronson was separately ordered to pay a civil penalty in the amount of $184,767. The Court also authorized the SEC to create a fund to distribute any payments to the victims of the fraud.

Bronson’s brother and the former chief compliance officer of Strong, John Engebretson, was also charged in the complaint with failing to perform his compliance responsibilities and ignoring numerous “red flags” raised during the course of the fraudulent scheme. As a result, Engebretson was charged along with Bronson and Strong with violating the compliance requirements of the federal securities laws. Engebretson previously agreed to settle the charges against him and the Court entered a final judgment against him on June 15, 2018. As part of the settlement, Engebretson agreed to be enjoined, pay a civil monetary penalty in the amount of $15,000, and to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

The SEC’s litigation was handled by Douglas Miller of the SEC’s Los Angeles Regional Office and supervised by Amy Longo.