Michael Breton, an MA-based investment adviser, and his firm Strategic Capital Management, will be banned from the securities industry after the SEC uncovered an illegal cherry-picking scheme through its data analysis used to detect suspicious trading patterns.

Monetary sanctions would be determined at a later date.  In a parallel action, the U.S. Attorney’s Office for the District of Massachusetts today announced criminal charges against Breton.

SCM clients had been defrauded out of approximately $1.3 million. Breton allegedly placed trades through a master brokerage account and then allocated profitable trades to himself while placing unprofitable trades into the client accounts. The Market Abuse Unit’s analysis of Breton’s trading showed that he defrauded at least 30 clients during a 6-year period as outlined in the SEC’s complaint. 

Breton allegedly purchased securities for his own accounts and the client accounts through a block trading or master account on days when public companies scheduled earnings announcements.  He typically delayed allocation of those trades until later in the day after learning the substance of the announcement. When companies announced positive earnings that would presumably increase the stock value, Breton disproportionately allocated those trades to his accounts.  And when a company announced negative earnings that would presumably decrease the stock value, Breton disproportionately allocated those trades to client accounts.