SEC Alleges William D. Carlton is Involved in Alleged “Cherry Picking” Scheme

• October 21, 2024
• Cetera Advisors LLC
• First Allied Securities

William David Carlton (Bill Carlton) (CRD#: 1215541) was a previously registered broker and investment advisor.

Broker’s History

He entered the securities industry in 1983 and previously worked with Foster & Marshall Inc.; Lehman Brothers Inc.; Smith Barney Shearson Inc.; Prudential Securities Incorporated; First Montauk Securities Corp.; First Allied Securities, Inc.; and Cetera Advisors, LLC.

Allegations of Misconduct

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), Plaintiff Securities and Exchange Commission, for its Complaint against Defendant William D. Carlton alleges that Carlton, a former investment adviser, engaged in a long-running and fraudulent trade allocation scheme-commonly referred to as “cherry picking”-in which he benefitted himself to the detriment of his investment advisory clients.

Between at least January 2015 and December 2023, Carlton worked as an investment adviser representative, initially for First Allied and then Cetera, and as an investment adviser serving roughly 50-70 clients in any given year.

Contrary to First Allied’s and Cetera’s policies, and in breach of his fiduciary duty to his clients, from at least January 2015 through August 2022, Carlton engaged in a pattern and practice of placing trades for himself and his clients in his personal accounts, and then disproportionately keeping “winning” trades for himself, while surreptitiously saddling his clients with “losing” trades that he allocated to their accounts.

Carlton’s scheme involved placing stock trades in his personal trading accounts and observing the daily price movements of the stocks. If the price of the stock increased during the day, Carlton often sold the shares, locking in short-term profits for himself. If the price of the stock decreased during the day, Carlton often moved some or all of the shares to his clients’ accounts, thereby avoiding short-term losses. In short, by waiting and watching the price movements of the stocks he purchased in his personal accounts before deciding whether to keep the trades for himself or allocate the trades to his clients, he was able to “cherry pick” trades that were immediately profitable for himself, to the detriment of his clients to whom he owed a fiduciary duty. Between at least January 2015 and August 2022, Carlton generated millions of dollars in ill-gotten gains through his clandestine cherry-picking scheme.

The Commission requested that the court:

1. Enter a permanent injunction restraining Carlton and each of his agents, servants, employees and attorneys and those persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, from directly or indirectly engaging in the conduct described above, or in conduct of similar purport and effect;
2. Require Carlton to disgorge his ill-gotten gains, plus pre-judgment interest;
3. Require Carlton to pay an appropriate civil monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)], and Section 209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)]; and
4. Award such other and further relief as the Court deems just and proper.

For a copy of the SEC Complaint, click here.

In addition, William Carlton has two other FINRA Disclosures:

• December 2023—Discharged by Cetera Advisors, LLC, “Inappropriate Trading Practices.”
• September 2022—Investigation of Trading Practices initiated by UNITED STATES SECURITIES AND EXCHANGE COMMISSION.

For a copy of William Carlton’s FINRA BrokerCheck, click here.

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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. 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.

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