Cherry Picking

Cherry picking, in the context of trading and investment, refers to a deceptive and unethical practice where a trader or investment manager selectively reports or records only the profitable trades or investment decisions while omitting or concealing the losing ones. It can also be where trades are selectively allocated to an trader or advisor's personal accounts, while unprofitable trades are left out of these accounts, all to the detriment of the trader or advisor's client accounts.
This practice is considered fraudulent and is a violation of securities regulations in many jurisdictions. Cherry-picking schemes often remain hidden from investors for extended periods, making detection challenging.
== Background ==
Cherry picking, when applied to trading and investment, involves manipulating or misrepresenting trade records or performance data to create a false impression of success. Typically, the individual or entity engaging in cherry picking presents a distorted view of their trading activities by showcasing only the winning trades or favorable investment decisions to potential investors or clients. The goal is to attract investments or clients by making their track record appear much more profitable and less risky than it actually is.
==Key Aspects of Cherry Picking in Trading==
=== Selective Reporting ===
Cherry pickers meticulously choose which trades or investments to disclose, emphasizing the ones that resulted in gains while ignoring or downplaying those that incurred losses. This selective reporting can mislead investors into believing the trader or investment manager possesses exceptional skills.
=== Misrepresentation ===
Cherry pickers often manipulate data, performance reports, or portfolio statements to make it seem as though they consistently make profitable decisions. This misrepresentation can involve altering dates, values, or other relevant information to create a misleading narrative.
=== Lack of Transparency ===
Traders and investment managers engaged in cherry picking typically lack transparency in their operations. They may not provide full access to their trade history or portfolio details, making it challenging for investors to conduct due diligence effectively.
=== Investor Deception ===
The primary motive behind cherry picking is to deceive investors or clients into believing that the trader or investment manager has a track record of successful trading or investment decisions. This deception can lead to investments based on false premises and result in financial losses for unsuspecting investors.
==Legal and Regulatory Implications==
Cherry picking is illegal and unethical, and it is considered a form of securities fraud. Securities regulators, such as the U.S. Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC) and the Financial Industry Regulatory Authority (FINRA), actively monitor and investigate instances of cherry picking. Violations can result in severe penalties, including fines, disgorgement of ill-gotten gains, suspension or revocation of licenses, and civil or criminal charges.
===Regulatory Cases===
In recent years, U.S. regulatory agencies have pursued several high-profile cases of alleged cherry-picking schemes at investment firms:
Western Asset Management Investigation (2024):
* Federal prosecutors and the SEC launched investigations into Western Asset Management for potential cherry-picking practices. The probe centered on allegations that a company executive allocated profitable trades to favored client accounts while assigning less profitable trades to other clients.
* GlennCap LLC and Jonathan Vincent Glenn (2023): The SEC settled fraud charges against GlennCap LLC and its owner Jonathan Vincent Glenn for engaging in a cherry-picking scheme. They allegedly allocated profitable trades to favored accounts, including GlennCap's own accounts and client accounts that paid higher fees, while allocating unprofitable trades to disfavored clients. The respondents agreed to disgorge over $2.7 million plus interest and pay a $500,000 civil penalty.
* Strong Investment Management (SIM) Case: The SEC barred a trader and ordered Strong Investment Management to return fraudulent profits after allegations of cherry-picking. The trader allegedly allocated all trades from a block transaction to his own account.
* UCB Financial Advisers Inc. and Ramiro Jose Sugranes (2021): The SEC filed fraud charges and obtained an asset freeze against Miami-based investment professional Ramiro Jose Sugranes and two investment firms for an alleged cherry-picking scheme. They allegedly diverted about $4.6 million in profitable trades to two preferred accounts while other clients suffered over $5 million in losses.
* World Tree Financial, LLC and Wesley Kyle Perkins (2018-2021): The SEC filed a complaint against World Tree Financial and its majority owner Wesley Kyle Perkins for operating a cherry-picking scheme. Perkins allegedly allocated profitable trades to favored accounts, including his own, while allocating unprofitable trades to other client accounts. The court entered a final judgment in favor of the SEC in 2021.
== References ==
Category:Fraud