Litigation Release No. 24808 / April 28, 2020
Securities and Exchange Commission v. Donald J. Kellen, No. 2:20-cv-03861 (C.D. Cal. filed April 28, 2020)
The Securities and Exchange Commission today announced charges against Donald J. Kellen, an investment adviser representative based in Palos Verdes Estates, California, for conducting a multi-year cherry-picking scheme that defrauded his clients.
According to the SEC’s complaint, from about May 2012 through September 2015, Kellen profited at his clients’ expense by cherry-picking profitable trades using an omnibus account, which is intended to facilitate purchases of securities for multiple client accounts. Kellen allegedly delayed allocating the securities from the omnibus account to individual client accounts until after he had observed the securities’ price movement over the course the trading day. Kellen allegedly disproportionately allocated profitable trades to his personal accounts and unprofitable trades to his clients’ accounts. According to the complaint, this alleged misuse of his omnibus account enabled him to engage in riskless day-trading.
The SEC’s complaint filed in federal court in Los Angeles charges Kellen with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933. In related actions instituted on August 26, 2019, the SEC entered settled administrative and cease-and-desist orders against Laurel Wealth Advisors, Inc., a registered investment adviser based in La Jolla, California, and Joseph C. Buchanan, another investment adviser representative previously associated with that firm.
The SEC’s investigation was conducted by Nicholas Chung and Diana Tani of the Market Abuse Unit in the Los Angeles Regional Office, with assistance from Hugh Beck in the Market Abuse Unit’s Analysis and Detection Center. The case was supervised by Joseph Sansone, Chief of the Market Abuse Unit. Data analysis was performed by Carmen Taveras Alam in the SEC’s Division of Economic and Risk Analysis. The litigation will be led by Daniel Blau and supervised by Amy Longo.