SEC Accuses Newport Firm of Cherry Picking

August 20, 2002 ( - A Newport, Rhode Island investment firm diverted more than $1 million in market returns due to clients into firm accounts instead, federal regulators have charged, Reuters reported.

The US Securities and Exchange Commission (SEC) said Slocum, Gordon & Co. (SGC) allegedly started the so-called “cherry picking” process as early as 1988. They continued to give losing trades to clients and keep the best for John Slocum and Jeffrey Gordon, the Reuters report said.

According to the SEC court documents, Slocum and Gordon “waited to assign the (securities) purchases until just before the settlement date (usually three business days after) so they could first determine whether they could make money for SGC.”

If the stock price jumped before the trade settled, the two men sold shares meant for clients and turned the profit stream back to their company, the SEC charged. 

But in instances when the stock price fell, they earmarked stocks meant for SGC to their clients instead, it was alleged.

The head of the SEC’s Boston office, Juan Marcelino, said the defendants’ conduct “was an incredible and totally inexcusable breach of trust.” The commission wants the two men to return the profits they allegedly diverted and pay a fine, among other things, according to Reuters.