SEC Sues RRBB Asset Management, LLC And Owner Carl Schwartz

On September 10, 2020, the Unites States Securities and Exchange Commission (SEC) filed a civil Complaint in U.S. District Court for the District of New Jersey against defendants RRBB Asset Management, LLC and Carl S. Schwartz. According to the “Summary” contained in the SEC’s Complaint, Schwartz engaged in “cherry picking,” the act of disproportionately allocating profitable trades to accounts held by certain clients while allocating less profitable trades to other clients.

The SEC alleges that by engaging in “cherry picking,” RRBB and Schwartz earned substantial management fees and convinced their clients that RRBB and Schwartz were better money managers than they really were. This conduct, according to the SEC’s Complaint, violates the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

As Investment Advisers, Schwartz and RRBB Asset Management Owed A Fiduciary Duty To Their Clients

The SEC Complaint makes clear that “[a]s investment advisers, Schwartz and RRBB owed a fiduciary duty to their advisory clients to act for their clients’ benefit, including an affirmative duty of utmost good faith and full disclosure of all material facts, as well as a duty to avoid misleading their advisory clients.”

In alleged violation of this duty, the SEC lays out Schwartz and RBBB’s “cherry picking” scheme: they allocated favorable trades with positive returns to a new, high-net-worth client while allocating the unfavorable trades to a group of other clients. According to the SEC, Schwartz was able to do this by trading multiple clients’ funds simultaneously in an “omnibus account.” The SEC alleges that, after viewing the performance of trades in the omnibus account, Schwartz then allocated the trades as he saw fit, resulting in the “cherry picking” that formed the basis of the SEC’s suit.

Allegedly, Schwartz and RRBB Asset Management did so in an effort to maximize their fees and convince a new, high-net-worth client that they were successful money managers.

Cherry Picking is Just One Way in Which an Investment Adviser Can Breach their Fiduciary Duty to You

SEC-registered investment advisers are fiduciaries as required by the Investment Advisers Act of 1940. As fiduciaries, they are obligated to act in the best interest of their clients and they owe clients a duty of loyalty and good faith when they make investment recommendations.

As explained in the SEC’s Complaint against RRBB Asset Management and Schwartz, one potential way to breach this duty is to engage in “cherry picking,” or allocating winning trades to some clients to the detriment of others. However, investment advisers may be found liable for breaching their fiduciary duty for a wide variety of conduct, including making investment recommendations that are not in a client’s best interest, receiving hidden “under-the-table” fees or commissions for making certain investment recommendations, or engaging in other fraud to the detriment of main street investors.

Have You Suffered Investment Losses Due To Investment Adviser Misconduct?

Before investing, it is important to ask questions, do diligent research, read recent reporting statements filed with the SEC or other regulators, and consult an expert if you are still unsure.

Silver Law Group has extensive experience representing investors in breach of fiduciary duty claims against investment advisers. We represent investors in securities and investment fraud cases nationwide to help recover investment losses due to stockbroker and fraudster misconduct and other investment-related wrongdoing. We work on a contingency fee basis, meaning you won’t pay us any legal fees unless we are successful. Call us toll free at (800) 975-4345 or email ssilver@silverlaw.com to get in touch.