UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 68669 / January 16, 2013

INVESTMENT ADVISERS ACT OF 1940

Release No. 3534 / January 16, 2013

INVESTMENT COMPANY ACT OF 1940

Release No. 30351 / January 16, 2013

ADMINISTRATIVE PROCEEDING

File No. 3-14993

In the Matter of

MIDDLECOVE 

CAPITAL, LLC, AND 

NOAH L. MYERS,

Respondents.

ORDER MAKING FINDINGS AND 

IMPOSING REMEDIAL SANCATIONS 

AND A CEASE-AND-DESIST ORDER 

PURSUANT TO SECTIONS 15(b) AND 21C 

OF THE SECURITIES EXCHANGE ACT 

OF 1934, SECTIONS 203(e), 203(f), AND

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940, AND SECTION 9(b) OF THE 

INVESTMENT COMPANY ACT OF 1940

I.

On August 22, 2012, the United States Securities and Exchange Commission (the 

“Commission”) instituted administrative and cease-and-desist proceedings pursuant to 

Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), Sections 

203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), and 

Section 9(b) of the Investment Company Act of 1940 (“Investment Company Act”) against 

MiddleCove Capital, LLC (“MiddleCove”) and Noah L. Myers (“Myers”) (collectively, “the 

Respondents”). 

II.

Respondents have each submitted an Offer of Settlement (the “Offers”) which the 

Commission has determined to accept. Solely for the purpose of these proceedings and any 

other proceedings brought by or on behalf of the Commission, or to which the Commission 

is a party, and without admitting or denying the findings herein, except as to the 

Commission’s jurisdiction over them and the subject matter of these proceedings, which are 

admitted, Respondents consent to the entry of this Order Making Findings and Imposing 

Remedial Sanctions and a Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the 

Securities Exchange Act of 1934, Sections 203(e), 203(f), and 203(k) of the Investment 
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Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940 (“Order”) 

as set forth below. 

III.

On the basis of this Order and Respondents’ Offers, the Commission finds1that:

SUMMARY

1. From approximately October 2008 to February 2011 (the “relevant period”), 

Noah Myers, the sole owner of MiddleCove Capital, LLC (“MiddleCove”), engaged in 

fraudulent trade allocation – “cherry-picking” – at MiddleCove. During the relevant period, 

MiddleCove was a registered investment adviser. Myers executed his cherry-picking scheme by 

unfairly allocating trades that had appreciated in value during the course of the day to his 

personal and business accounts and allocating trades that had depreciated in value during the day 

to the accounts of his advisory clients. He did this by purchasing securities in an omnibus 

account and delaying allocation of the purchases until later in the day (and sometimes the next 

day), after he saw whether the securities appreciated in value. When a security appreciated in 

value on the day of purchase, Myers would often sell the security and disproportionately allocate 

the purchase and the realized day-trading profit to his own accounts or accounts benefiting 

himself or his family members. In contrast, for securities that did not appreciate on the day of 

purchase, Myers would disproportionately allocate these purchases to his clients’ accounts and 

his clients would hold the position for more than one day. Myers carried out his cherry-picking 

scheme with regard to several securities, but was most active with an inverse and leveraged 

exchange traded fund (ETF). Myers finally ceased these practices in February 2011 when one of 

his employees threatened to contact the Commission. As a result of his fraud, Myers realized illgotten gains of approximately $460,000. Myers’s cherry-picking scheme also resulted in more 

than $2 million in client losses from his trading in the inverse and leveraged ETF. Neither 

MiddleCove nor Myers disclosed to clients that they were engaged in cherry-picking and that 

they would favor Myers’s accounts in the allocation of appreciated securities. In addition, Myers 

and MiddleCove failed to follow the policies stated in MiddleCove’s ADV concerning trade 

allocation. 

2. By virtue of their conduct, the Respondents willfully violated Section 10(b) of 

the Exchange Act [15 U.S.C. §§78j(b)] and Rule 10b-5 [17 C.F.R. §§240.10b-5] promulgated 

thereunder, and Sections 206(1) [15 U.S.C. §80b-6(1)], 206(2) [15 U.S.C. §80b-6(2)] and 207 

[15 U.S.C. §80b-7] of the Advisers Act.

 

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The findings herein are made pursuant to Respondents’ Offers and are not binding on any other 

person or entity in this or any other proceeding.
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RESPONDENTS

3. MiddleCove Capital, LLC (SEC File No. 801-68677), is a Connecticut 

limited liability company with its principal place of business in Centerbrook, Connecticut. It 

has been registered with the Commission as an investment adviser since 2008 when Myers 

formed MiddleCove. At its peak in 2011, when MiddleCove had two portfolio managers 

including Myers, MiddleCove managed approximately $129 million in client assets. 

MiddleCove is wholly owned and controlled by Myers. In mid-2011, one of MiddleCove’s 

portfolio managers left the firm after being there for approximately one year. As a result of 

his departure, MiddleCove’s assets under management declined by approximately one-half. 

MiddleCove currently has no employees other than Myers. As of September 31, 2011, 

MiddleCove managed approximately 350 client accounts and had approximately $53,000,000 

under management. MiddleCove’s clients are individuals and families. 

4. Noah L. Myers, age 41, resides in Lyme, Connecticut. Myers is the principal, 

chief investment officer, and sole owner of MiddleCove. Myers formed MiddleCove in early 

2008 after a fourteen-year career at Citigroup Global Markets Inc. (“Citigroup”). During the 

relevant time period, Myers was also a registered representative of Purshe Kaplan Sterling 

Investments, Inc. (“Purshe Kaplan”), a registered broker-dealer located in Albany, New York. 

OTHER RELEVANT ENTITY

5. Purshe Kaplan Sterling Investments, Inc. (SEC File No. 8-46844), is a New 

York corporation with its principal place of business in Albany, New York. Purshe Kaplan has 

been registered with the Commission as a broker-dealer since 1994. Myers was a registered 

representative of Purshe Kaplan during the relevant time period. 

RESPONDENTS’ CONDUCT

The cherry-picking scheme.

6. Myers formed MiddleCove in February 2008, and, in April 2008, Myers began 

using an omnibus account (“master account”) at Charles Schwab & Co., Inc. (“Charles 

Schwab”), the custodian for all of MiddleCove’s accounts, to place orders for his personal and 

client transactions. When he used the master account to purchase securities, Myers would place 

a block trade in the master account and then allocate the shares to his personal and client 

accounts. 

7. Prior to October 2008, Myers was relatively inactive in his own accounts as 

compared to his client accounts. However, Myers began day-trading his own accounts in 

October 2008 and actively traded his own accounts over the next two years. From October 2008 

to February 2011, Myers allocated approximately $60 million in securities purchased in the 

master account to his personal and business accounts, compared to approximately $200 million 

in securities purchased in the master account and allocated to MiddleCove’s clients. Myers’s 

personal trading activity, including his day-trading, slowed considerably after a MiddleCove 

employee confronted Myers in late 2010 about his cherry-picking scheme. 
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8. From October 2008 to February 2011, Myers engaged in a cherry-picking scheme 

to misappropriate profitable transactions to his personal and business accounts. Myers made

block purchases of securities in the master account sometime during the trading day before the 4 

P.M. close of the U.S. stock market. After making a purchase, Myers delayed allocating it until 

he knew whether there was a gain or loss on the trade on the day of purchase. During the 

relevant time period, approximately 65% of the purchases that Myers allocated to his clients 

were not allocated until after 4 P.M. on the day of the purchase. On some occasions, Myers 

would even wait until the next day to allocate a purchase and then mark the allocated trade “As 

Of” the day it was purchased in the market. This timing difference made it possible for Myers to 

selectively allocate profitable trades to his own accounts. If the security increased in price on the 

day of purchase, Myers would often sell the security on the same day he purchased it (a “day 

trade”) and disproportionately allocate the day-trade profit to his personal and business accounts. 

However, if the security’s price did not increase on the day of purchase, Myers

disproportionately allocated the purchase to his clients’ accounts. 

9. Myers’s scheme often involved purchasing a security in the master account for 

consecutive days over several weeks, or even months, and then allocating the security depending 

on its performance. If it increased in value on the day of purchase, he disproportionately 

allocated the security to his own accounts. If the security decreased in value on the day of 

purchase, Myers disproportionately allocated it to his clients’ accounts. Thus, the securities on 

which Myers was disproportionately making money were the same securities on which his 

clients were disproportionately losing money. In fact, during the relevant time period, when 

Myers allocated a trade to his own accounts, he had almost always allocated the same security to 

his clients’ accounts on a different trading day within one month of the allocation to his own 

accounts. The only consistent difference in whether Myers allocated a security to his own 

accounts or his clients’ accounts was whether the security appreciated in value on the day it was 

purchased. 

The scheme is identified.

10. Charles Schwab had an internal program that flagged Myers’s accounts as 

potentially receiving favorable allocation of profitable day trades. A MiddleCove employee 

investigated Myers’s trading patterns after he received a call from an employee of Charles 

Schwab in November 2010. The Schwab employee indicated that Schwab had flagged the 

allocation of MiddleCove’s block trades as potentially giving profitable trades to an account that 

benefited Myers. As a result of the call, the MiddleCove employee analyzed Myers’s trade 

allocation for a stock (Research in Motion or RIMM) and a leveraged ETF (ProShares UltraShort 

Financials or SKF). From his analysis of Myers’s trade allocation of these two securities, the 

employee suspected that Myers was cherry-picking trades in favor of his own account at the 

expense of his clients. Specifically, the employee believed, based on his review of Myers’s trade 

allocation, that Myers was allocating trades that lost money at the end of the day to clients 

instead of himself and that the performance for Myers’s accounts was much more profitable than 

his clients’ accounts. 

11. Following the MiddleCove employee’s analysis of Myers’s cherry-picking 

scheme, all four of MiddleCove’s employees confronted Myers about his trade allocation in midDecember, 2010. As a result of the confrontation, Myers agreed to use a trading method that 
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required Myers to place all of his client trades through a certain Charles Schwab trade 

application, and to use a different method for his own trades. 

12. On February 18, 2011, the same MiddleCove employee who had analyzed 

Myers’s trading in November noticed Myers had allocated a day trade profit to himself using the 

Charles Schwab trade application that Myers had agreed to only use for clients’ trades. The 

employee confronted Myers and threatened to report Myers to the Commission if he did not reallocate the trade, and Myers agreed to re-allocate the trade to a client. After this confrontation,

Myers stopped cherry-picking and did relatively little trading in his own accounts. 

13. Commission examination staff interviewed Myers in November 2011 about his 

own securities trading. Myers admitted that he had a day-trading strategy in one of his personal 

accounts that was profitable about 95% of the time, but he did not offer a plausible explanation 

for his stellar day-trading performance.

Myers profited at his clients’ expense.

14. During the relevant time period, trades that Myers made in his own accounts 

increased in value by an average of approximately 67 basis points (or .67 of one-percent) on the 

day that Myers purchased the security. This 67 basis-point increase resulted in approximately 

$408,000 in first-day profits for Myers’s own accounts. In contrast, during the relevant time 

period, trades that Myers allocated to his clients’ accounts decreased by approximately 32 basis 

points on the day that Myers purchased the security. This difference in return is highly 

statistically significant – the likelihood of Myers experiencing his first-day return (approximately 

67 basis points) compared to the average first-day return for all of his and his clients’ purchases

(approximately negative 32 basis points for his clients’ purchases and negative 9 basis points for 

his and his clients’ purchases combined) from a “lucky” allocation of trades is less than one in 

ten million. Similarly, approximately 74% of Myers’s trades had a profit on the first day 

compared to approximately 52% of his clients’ trades – the likelihood of observing a difference 

in profitability this large by chance is less than one in one trillion. 

15. Myers realized approximately $138,000 in profits on his trades of SKF (the 

leveraged and inverse ETF discussed above) while his clients realized a net loss of 

approximately $2.2 million on their SKF trades. These losses were spread out among 

approximately 120 clients. 

16. Myers’s cherry-picking scheme also resulted in significant investment losses for 

MiddleCove clients to whom Myers allocated shares of SKF. Many of the clients did not know 

what SKF was or that they had invested in a leveraged ETF, even when their investment in SKF 

was a significant part of their account value and they experienced significant losses because of it. 

Many of these clients were retired and/or were using their MiddleCove account as their source of 

funds for retirement and had limited willingness or ability to accept significant investment risk. 

17. Leveraged and inverse ETFs like SKF are generally not designed to be held for 

more than one day. In June 2009, Financial Industry Regulatory Authority (“FINRA”) issued 

Notice to Members 09-31 reminding firms of their sales practice obligations relating to leveraged 

and inverse ETFs. SKF is a leveraged and inverse ETF designed to achieve daily investment 
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results corresponding to twice the inverse (opposite) of the daily performance of the Dow Jones 

U.S. Financials Index. The FINRA notice described how leveraged and inverse ETFs are 

designed to achieve their stated objectives on a daily basis, and, “[d]ue to the effect of 

compounding, their performance over longer periods of time can differ significantly from the 

performance (or inverse of the performance) of the underlying index or benchmark during the 

same period of time. . . This effect can be magnified in volatile markets.” With an inverse or a 

leveraged ETF, if the relevant benchmark moves 100 points in one direction on day one and 

returns to the original level on day two, an investment in the ETF held for both days will be 

negative even though the benchmark is flat. (If, on the other hand, the benchmark moved in the 

same direction on both days, an investor in the ETF would have even better performance than 

shorting the index or investing in the index on margin.) If the ETF is an inverse and leveraged 

ETF, as is the case with SKF, the loss would be more significant. For these and other reasons, 

the FINRA notice concluded that “While the customer-specific suitability analysis depends on 

the investor’s particular circumstances, inverse and leveraged ETFs typically are not suitable for 

retail investors who plan to hold them for more than one trading session, particularly in volatile 

markets.”

18. During the period of his cherry-picking scheme, approximately one-third of 

Myers’s one-day profits were from SKF trades. These profits came at the expense of 

approximately $2 million in client losses because Myers exposed his clients to the downside of 

this volatile security so that he could reap the rewards when SKF rose in value on the day of 

purchase. This scheme meant that Myers held SKF for more than one day in the accounts of 

several clients for whom such an investment was inappropriate. Moreover, at times, SKF was a 

considerable proportion of the holdings of his clients, further magnifying their investment risk. 

For example, Myers’s decision to use SKF as his tool for his cherry-picking scheme extended to:

 Investor A, age 84 and retired, invested all of her savings with MiddleCove. She 

described herself as conservative investor. Nonetheless, in September 2009, Myers 

established a $89,727.74 SKF position for this investor, which was 34.3% of her monthend account balance. The investor lost a net of $14,543 on SKF, and she had no idea 

what this security was. 

 Investor B, age 77 and retired, had his retirement savings completely with MiddleCove. 

He viewed himself as “moderate risk” investor. In September 2009, Myers established a 

$251,196.95 SKF position for this investor in his only account, representing about 28% 

of the account. The investor lost a net of $59,483 on SKF. 

 Investor C, age 70 and retired, was a client who described himself as unsophisticated. In 

September 2009, Investor C had approximately $239,288.89 of SKF, or approximately 

87.7% of the account’s month end value. The investor had no knowledge of what SKF 

was, and he lost a net of $83,264 on SKF. 

The scheme was contrary to MiddleCove’s Form ADV.

19. During the relevant time period, MiddleCove filed its Form ADV, Part II on April 

29, 2009, and March 29, 2010. Items 12A, 12B, and 13A of the Form ADV, Part II stated, in 

pertinent part: 
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Transactions for each client generally will be effected independently, unless the 

Adviser decides to purchase or sell the same securities for several clients at 

approximately the same time. The Adviser may (but is not obligated to) combine 

or “batch” such orders to obtain best execution, to negotiate more favorable 

commission rates, or to allocate equitably among the Adviser's clients differences 

in prices and commissions or other transaction costs that might have been 

obtained had such orders been placed independently. Under this procedure,

transactions will generally be averaged as to price and allocated among the 

Adviser’s clients pro rata to the purchase and sale orders placed for each client on 

any given day. To the extent that the Adviser determines to aggregate client 

orders for the purchase or sale of securities, including securities in which the 

Adviser's Advisory Affiliate(s) may invest, the Adviser shall generally do so in 

accordance with applicable rules promulgated under the Advisers Act and noaction guidance provided by the staff of the U.S. Securities and Exchange

Commission. The Adviser shall not receive any additional compensation or 

remuneration as a result of the aggregation.

The same items in the ADV went on to list specific circumstances in which allocations may not 

be pro rata among accounts, none of which applied to the relevant trades. These statements, 

taken as a whole, were misleading because the statements conveyed the impression that batched 

trades would be allocated fairly and not unduly favor Myers or MiddleCove, and, when trades 

included securities in which the “Adviser’s Advisory Affiliate(s) may invest,” there would be 

extra layer of protection provided by a regulatory framework. 

VIOLATIONS

20. As a result of the conduct described above, Myers and MiddleCove willfully 

violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent 

conduct in connection with the purchase or sale of securities, by knowingly or recklessly allocating 

profitable trades to Myers’s personal and business accounts at the expense of advisory clients. In 

addition, through this cherry-picking scheme and by failing to disclose the scheme, Myers and 

MiddleCove willfully violated Sections 206(1) and 206(2) of the Advisers Act, which prohibit 

fraudulent conduct by an investment adviser with respect to advisory clients or prospective clients.

21. As a result of the conduct described above, MiddleCove willfully violated Section 

207 of the Advisers Act by filing misleading Forms ADV that willfully made material 

misstatements concerning MiddleCove’s trade allocation policies and procedures. By signing and 

causing to be filed on behalf of MiddleCove these misleading Forms ADV, Myers also willfully 

violated Section 207 of the Advisers Act.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondents’ Offers.
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Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, Sections 203(e), 

203(f), and 203(k) of the Advisers Act, and Section 9(b) of the Investment Company Act, it is 

hereby ORDERED that:

A. Respondents MiddleCove and Myers cease and desist from committing or causing 

any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 

thereunder, and Sections 206(1), 206(2) and 207 of the Advisers Act. 

B. The registration of MiddleCove as an investment adviser is hereby revoked.

C. Respondent Myers be, and hereby is:

barred from association with any broker, dealer, investment adviser, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization;

barred from participating in any offering of a penny stock, including: 

acting as a promoter, finder, consultant, agent or other person who 

engages in activities with a broker, dealer or issuer for purposes of the 

issuance or trading in any penny stock, or inducing or attempting to induce 

the purchase or sale of any penny stock; and

prohibited from serving or acting as an employee, officer, director, member 

of an advisory board, investment adviser or depositor of, or principal 

underwriter for, a registered investment company or affiliated person of such 

investment adviser, depositor, or principal underwriter.

D. Any reapplication for association by Respondent Myers will be subject to the 

applicable laws and regulations governing the reentry process, and reentry may be conditioned 

upon a number of factors, including, but not limited to, the satisfaction of any or all of the 

following: (a) any disgorgement ordered against Respondent Myers, whether or not the 

Commission has fully or partially waived payment of such disgorgement; (b) any arbitration 

award related to the conduct that served as the basis for the Commission order; (c) any selfregulatory organization arbitration award to a customer, whether or not related to the conduct 

that served as the basis for the Commission order; and (d) any restitution order by a selfregulatory organization, whether or not related to the conduct that served as the basis for the 

Commission order.

E. Respondents shall, within 10 days of the entry of this Order, pay disgorgement of 

$462,022 and prejudgment interest of $26,096 to the Securities and Exchange Commission. If 

timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 

600. Respondents are jointly and severally liable for all payments required to be made by this 

paragraph. Payment must be made in one of the following ways: 

(1) Respondents may transmit payment electronically to the Commission, which will 
9

provide detailed ACH transfer/Fedwire instructions upon request;

2

(2) Respondents may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondents may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission and handdelivered or mailed to: 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying 

MiddleCove Capital, LLC and Noah L. Myers as Respondents in these proceedings, and the file 

number of these proceedings; a copy of the cover letter and check or money order must be sent to 

Kevin M. Kelcourse, Assistant Director, Asset Management Unit, Boston Regional Office, 

Securities and Exchange Commission, 33 Arch Street, Suite 2300, Boston, MA 02110. 

F. Respondents shall, within 10 days of the entry of this Order, pay a civil money 

penalty in the amount of $300,000 to the Securities and Exchange Commission. If timely 

payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717. Respondents 

are jointly and severally liable for all payments required to be made by this paragraph. Payment 

must be made in one of the following ways: 

(1) Respondents may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request; 

(2) Respondents may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondents may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission and handdelivered or mailed to: 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying 

MiddleCove Capital, LLC and Noah L. Myers as Respondents in these proceedings, and the file 

number of these proceedings; a copy of the cover letter and check or money order must be sent to 

Kevin M. Kelcourse, Assistant Director, Asset Management Unit, Boston Regional Office, 

Securities and Exchange Commission, 33 Arch Street, Suite 2300, Boston, MA 02110. 

 

2 The minimum threshold for transmission of payment electronically is $50,000.00 as of April 1, 2012. This 

threshold will be increased to $1,000,000 by December 31, 2012. For amounts below the threshold, respondents 

must make payments pursuant to option (2) or (3) above.
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G. Such civil money penalty may be distributed pursuant to Section 308(a) of the 

Sarbanes-Oxley Act of 2002, as amended (“Fair Fund distribution”). Regardless of whether any 

such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties 

pursuant to this Order shall be treated as penalties paid to the government for all purposes, 

including all tax purposes. To preserve the deterrent effect of the civil penalty, Respondents 

agree that in any Related Investor Action, they shall not argue that they are entitled to, nor shall 

they benefit by, offset or reduction of any award of compensatory damages by the amount of any 

part of Respondents’ payment of a civil penalty in this action (“Penalty Offset”). If the court in 

any Related Investor Action grants such a Penalty Offset, Respondents agree that they shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the Commission’s 

counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or 

to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional 

civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this 

proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 

damages action brought against either of the Respondents by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding.

By the Commission.

Elizabeth M. Murphy

Secretary