May 6, 2020
Donald Kellen, an investment adviser representative (IAR) based in Palos Verdes, California, was recently charged with violating anti-fraud provisions of securities industry rules in an alleged multi-year “cherry-picking” scheme that defrauded clients. Kellen was associated with Laurel Wealth Advisors, Inc., an investment advisor firm based in La Jolla, California, as an IAR for approximately 40 clients from September 2011 through September 2015.
The SEC alleges in the Complaint that from May 2012 through September 2015, Kellen used an omnibus account (i.e. an account that holds more than one item and is meant to facilitate purchases of securities for multiple client accounts) to cherry-pick profitable trades at his clients’ expense. Kellen allegedly delayed transferring securities to client accounts until he could observe the securities’ price movement throughout the trading day. Kellen would then allegedly move the most profitable trades to his personal accounts and allocate the unprofitable trades to his clients’ accounts. The SEC asserts that this tactic allowed Kellen to engage in riskless day-trading for personal gain at his clients’ expense.
The SEC charged Donald Kellen with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933. In related actions initiated on August 26, 2019, the SEC settled administrative and cease-and-desist orders against Laurel Wealth Advisors, Inc. and its formerly associated investment adviser Joseph Buchanan.
The SEC requests in the Complaint that the Court issue findings and fact and conclusions of law that Donald Kellen committed the alleged violations. The SEC also seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties.