SEC Finds that Adviser Allocated Client Trades in a Manner Inconsistent with Its Form ADV

May 5, 2017

The SEC brought an enforcement action against Tellone Management Group, Inc. (TMG) and Dean C. Tellone for allocating profitable day trades in a manner that was inconsistent with TMG’s disclosure in its Form ADV. The SEC stated that TMG’s Forms ADV disclosed that the adviser would use a rotation method for allocating block trades to its clients’ accounts so that over time the clients would receive roughly equal access and equal participation in limited trading opportunities. The SEC found that TMG and Tellone, however, had a practice of allocating day trades with a profit of $300 or less to a single client account that had negotiated commission free trades with a third-party brokerage firm. TMG’s other clients received all other trades and therefore generally paid a higher price for their trades and bore the risk of the day trade account that only received profitable day trades. As a result, the SEC stated that TMG did not always follow the practice for trade allocation that it described in its Form ADV filings.

Click IA-4701 (May 5, 2017) to access the enforcement action.