Cherry-picking is a deceitful practice in which investment advisers or brokers allocate profitable trades to themselves or favored clients and assign less profitable or losing trades to everyone else. It is a form of securities fraud that can stay hidden for years, often leaving unsuspecting investors with unexpected losses. This scheme breaches the ethical and fiduciary principles that govern fair treatment in financial markets. Many investors only realize they were targeted after harm is done. Proper awareness of how this fraud unfolds can help observers recognize its warning signs and seek prompt remedies.
If you or someone you know has suffered significant investment losses as a result of cherry picking or another form of securities fraud, don’t hesitate to reach out to Meyer Wilson today. Our attorneys are experienced in securities fraud cases and will help to guide you through the process with a free consultation to determine whether your losses are the result of actionable misconduct.
How Cherry-Picking Schemes Operate
What Is Cherry-Picking in Securities?
Cherry-picking in securities involves placing trades for multiple accounts through what is often called an “omnibus” or “block” account, then waiting to see which transactions gain or lose value. The perpetrator assigns the profitable trades to favored accounts—sometimes personal or family accounts—and offloads the less fortunate trades onto regular clients. This practice directly violates the fiduciary duty to act in the client’s best interest.
By retaining the winning trades, a dishonest broker or adviser essentially executes risk-free strategies for themselves at the expense of unsuspecting investors. Over time, this skewing of gains and losses can generate substantial illicit profits. Investors, on the other hand, see consistent underperformance and may remain unaware they are funding the perpetrator’s windfall.
Examples of Cherry-Picking in Trading
Multiple high-profile enforcement actions illustrate just how damaging cherry-picking can be:
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IFP Advisors, LLC and its former representative, Richard Keith Robertson, settled charges for a cherry-picking scheme of almost $1 million between disgorgement and penalties, where Robertson allocated profitable trades to personal accounts and unprofitable ones to clients.
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The SEC charged Ramiro Jose Sugranes and two UCB entities with fraud for allegedly diverting profitable trades to preferred accounts, resulting in $4.6 million in gains for those accounts and over $5 million in losses for other clients.
These incidents show how a single individual or a small group can manipulate daily trades to amass personal gains. Many such schemes remain undetected if compliance departments fail to scrutinize systematic trade allocation patterns.
How Brokers Exploit Trade Allocations
Cherry-picking centers on delayed or selective allocations, allowing perpetrators to see how a stock or other security performs before deciding who gets the trade. Common tactics include:
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Waiting until after a trading session or intraday price changes to identify which securities gained in value.
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Using vague bookkeeping that does not specify, in advance, where each block trade should go.
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Omnibus accounts where shared trading conceals how positions are ultimately assigned.
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Bypassing automated compliance checks or capitalizing on weak oversight so allocations receive little meaningful review.
Even minor intraday fluctuations can generate consistent short-term gains for the favored accounts while other investors are stuck with losses.
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Detection and Regulation of Cherry-Picking
How the SEC Detects Cherry-Picking
The U.S. Securities and Exchange Commission (SEC) relies on advanced data analytics to uncover cherry-picking. Investigators often run simulation tests—sometimes repeating them millions of times—to calculate whether certain allocation patterns could occur by chance. In many cases, the probability is near zero. A data-driven initiative focusing on suspicious trade allocation led to formal charges in 2015 that uncovered a persistent scheme involving skewed returns. One example involved an adviser who saw an average first-day gain of around 6% in personal accounts while clients experienced first-day losses of about 5%. Data-driven proof like this points strongly to fraud.
Whistleblowers also play a key role in detection. Complaints from investors, platform operators, or staff within a firm can lead the SEC to analyze suspicious allocation records more closely. Once patterns of improbable profitability emerge, regulators pursue enforcement through administrative or court proceedings.
Regulatory Rules and Penalties
Cherry-picking often triggers penalties under various laws prohibiting securities and investment adviser fraud. Key enforcement actions include:
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Disgorgement of ill-gotten gains, often accompanied by additional financial penalties or restitution to victims through special “Fair Funds.”
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Bans or suspensions from the industry, along with administrative orders preventing future violations.
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Civil and criminal charges, possibly leading to multi-year prison sentences.
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Firm-level fines for failing to supervise. Some entities also face parallel actions by the Department of Justice (DOJ).
Many defendants are also required to pay prejudgment interest, which increases the total monetary liability and aims to compensate investors for the time value of lost funds.
Victims and Consequences of Cherry-Picking
Who Is Most at Risk?
Although pension funds and elderly clients are usual targets due to their inherent vulnerabilities caused by age and reliance on advisers, many others face similar threats:
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Institutional investors and large municipal funds can suffer huge losses when rogue managers allocate large blocks of trades unfairly.
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High-net-worth individuals often provide significant trading latitude to brokers, which can be misused for cherry-picking.
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Any retail investor who trusts an adviser with discretionary trading authority can fall victim to hidden allocation abuses.
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Meyer Wilson’s Fight Against Cherry-Picking
Cherry-picking undercuts the fundamental trust on which financial advising rests. By delaying or manipulating trade allocations, bad actors can drain their clients’ accounts for personal benefit. Victims often lose retirement income, college funds, and other savings they entrusted to their adviser’s knowledge.
Identifying cherry-picking can be unsettling when your broker’s actions undermine the stability of your investments. For investors who have suffered losses as a result of cherry-picking—legal remedies may be available. The securities attorneys at Meyer Wilson are experienced in securities fraud and broker misconduct and can provide valuable assistance in recovering losses. Our attorneys help investors manage the intricate landscape of securities law, pursuing claims against brokers or firms that violated their fiduciary duties or regulatory obligations. Contact us today for a free consultation.
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Frequently Asked Questions
How Do Cherry-Picking Schemes Work in Finance?
They rely on a broker or adviser’s ability to allocate trades after seeing how the market performs. Profitable trades end up in favored accounts, while other clients get saddled with losses. This method is often concealed when brokers use omnibus accounts and vague bookkeeping to obscure final allocations.
Can You Sue a Broker for Cherry-Picking?
Yes. Victims can bring claims through industry arbitration forums or in court. Proof typically involves analyzing trading patterns and allocation records showing improbable consistency of gains in the broker’s personal accounts. After building evidence, harmed investors may seek compensation for losses that stem directly from fraudulent allocations.
What Are the Signs of Cherry-Picking Fraud?
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Consistently poor or below-market returns in your account versus known performance benchmarks.
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Delayed trade confirmations or last-minute allocations with minimal documentation.
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A broker’s personal or related accounts displaying substantially higher returns without a clear justification.
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Discrepancies in statements or unexplained reassignments of trades already executed.
Recovering Losses Caused by Investment Misconduct.