Cetera, First Allied Advisors William Carlton and Hans Hernandez Allegedly Defrauded Clients
The SEC has reportedly charged two former investment advisors, William “Bill” Carlton from Kirkland, Washington, and Hans Hernandez from Hillsborough, New Jersey, for allegedly running separate “cherry-picking” schemes, defrauding clients out of more than $6.3 million in illicit profits.
According to the SEC on September 27, 2024, both advisors purportedly delayed trade allocations to observe daily price movements, allegedly ensuring profitable trades went to their personal accounts while unprofitable ones were assigned to clients.
William “Bill” Carlton reportedly generated $5.3 million from 2015 to 2022, while Hans Hernandez reportedly earned over $1 million between 2020 and 2022.
The SEC is reportedly seeking permanent injunctions, disgorgement of profits, and civil penalties against both individuals.
Cetera and First Allied Sanctioned for Failure to Supervise
In a related settlement, Cetera Investment Advisers and First Allied Advisory Services, firms associated with the advisors, were penalized for compliance failures that enabled the misconduct.
The firms agreed to a cease-and-desist order, censure, and a $200,000 fine without admitting wrongdoing. Cetera stated that they took prompt action upon discovering the schemes and have since terminated the advisors.
What is Cherry-picking?
Cherry-picking is the unethical practice where an investment advisor or broker selectively allocates trades between their personal accounts and client accounts after observing how the trades perform.
This allows them to disproportionately assign profitable trades to their personal accounts while pushing unprofitable or less favorable trades to their clients’ accounts. This practice is illegal because it exploits clients, violates their trust, and goes against the fiduciary duty that advisors owe to their clients.
Fiduciary Duty
Investment advisors have a fiduciary duty to act in the best interest of their clients. Cherry-picking is a clear violation of this duty, as it prioritizes the advisor’s personal interests over the client’s. The Investment Advisers Act of 1940 enforces this duty by requiring that advisors make decisions that serve their clients’ best financial interests, with full transparency.
FINRA member firms must have supervisory systems in place to prevent and detect practices like cherry-picking. This rule emphasizes that firms must supervise advisors’ activities to ensure they do not violate client trust or regulatory standards.
Broker dealers are required to supervise their representatives. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
Free Consultation
If you have suffered losses with William Carlton or Hans Hernandez, the securities attorneys at The White Law Group may be able to help you. For a free consultation to learn about your options, please call The White Law Group at 888-637-5510.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington.
Last modified: October 3, 2024
