The SEC brought an enforcement action against Birinyi Associates, a SEC-registered investment adviser for allegedly allocating profitable day trades from at least June 2014 to June 2019 in a manner that was unfair to certain clients and inconsistent with the firm’s disclosures and internal policies. The SEC stated that Birinyi Associates had a small group of clients whose strategy was limited to day trading, for whom equity positions were to be sold by the end of each trading day per client directives, while for the vast majority of its clients, Birinyi Associates followed a buy-and-hold strategy and primarily purchased stock for longer- term investment. The day trade client accounts were not affiliated in any way with Birinyi Associates or with its present or former principals, directors, officers, employees or agents.
The SEC found that Birinyi Associates made block trades in a master account and then allocated stock purchases and sales to individual client accounts. During the relevant period, the SEC stated that Birinyi Associates occasionally executed a day trade in the master account and allocated the purchase and sale to a day trade client, rather than allocating the purchase to a buy and hold client’s account as originally intended. According to the SEC, the day trades allocated to the day trade clients were almost always profitable but the profits were small, averaging 0.30% of the purchase price. As a result, the SEC found that the day trade clients received risk-free day trades with small profits while the buy and hold clients effectively bore all market risk for the day trade clients.
As a result, the SEC found that Birinyi Associates willfully violated Section 206(2) of the Advisers Act, which prohibits an investment adviser from engaging in any transaction, practice, or course of business that operates as a fraud or deceit upon any client. More information can be accessed by clicking the headline to this summary.