- September 20, 2023
- GlennCap, LLC
GlennCap LLC is a Connecticut limited liability company with its principal place of business in Greenwich, Connecticut. GlennCap has been registered as an investment adviser with the State of Connecticut since January 3, 2018, except for a period from December 31, 2019 to January 14, 2020 when GlennCap failed to renew its registration because of insufficient funds in its renewals account. GlennCap has also been registered as an investment adviser with the State of 1 The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 3 New York since April 22, 2019, and on a conditional, restricted basis with the State of Texas since January 23, 2020. According to GlennCap’s Form ADV filed on March 24, 2023, GlennCap manages $14 million in assets for 75 clients, all of whom are individual investors.
Allegations of Misconduct
According to publicly available records released by the Securities and Exchange Commission (SEC), From at least January 2020 to March 2022, GlennCap, acting through Glenn, its sole owner and principal, engaged in undisclosed “cherry-picking,” a practice of fraudulently allocating profitable trades to favored accounts at the expense of other advisory clients. Glenn allocated a disproportionate number of trades with positive first-day returns to accounts belonging to certain favored clients, GlennCap (which Glenn owns), and another account that Glenn controlled, while allocating a disproportionate number of trades with negative first-day returns to other client accounts. Glenn accomplished this by executing block trades in GlennCap’s omnibus brokerage account and then waiting until later in the day, after he could see whether the positions had increased or decreased in value, to allocate the trades to either favored or disfavored accounts. Respondents also made false and misleading statements concerning their trading practices in GlennCap’s Forms ADV, Part 2A (“Brochures”), which were provided to clients and prospective clients. By virtue of this conduct, Respondents willfully violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act.
Accordingly, it is hereby ORDERED that:
- Respondents GlennCap and Glenn cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act.
- Respondent GlennCap is censured.
- Respondents shall, within 14 days of the entry of this Order, pay, jointly and severally, disgorgement of $2,743,616 and prejudgment interest of $251,357, and Respondent Glenn shall pay a civil money penalty in the amount of $500,000, to the Securities and Exchange Commission.
For a copy of the full SEC cease-and-desist order, click here.
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Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.
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