South Florida Arbitration & Litigation Lawyer Blog
In the Matter of MiddleCove Capital, LLC and Noah L. Myers
The United States Securities and Exchange Commission (Commission) recently announced the issuance of an Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940, and Section 9(b) of the Investment Company Act of 1940 (Order) against MiddleCove Capital, LLC (MiddleCove), an investment adviser registered with the Commission, and Noah L. Myers (Myers), the principal of MiddleCove.
The Order finds that from approximately October 2008 to February 2011, Myers engaged in fraudulent trade allocation – “cherry-picking” – at MiddleCove. Myers executed his cherry-picking scheme by unfairly allocating trades that had appreciated in value during the course of the day to his personal and business accounts and allocating trades that had depreciated in value during the day to the accounts of his advisory clients. Myers did this by purchasing securities in an omnibus account and delaying allocation of the purchases until later in the day (and sometimes the next day), after he saw whether the securities appreciated in value. When a security appreciated in value on the day of purchase, Myers would often sell the security and disproportionately allocate the purchase and the realized day-trading profit to his own accounts or accounts benefiting himself or his family members. In contrast, for securities that did not appreciate on the day of purchase, Myers would disproportionately allocate these purchases to his clients’ accounts and his clients would hold the position for more than one day.
The Order finds that Myers and MiddleCove willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940 and orders them to cease and desist from committing or causing any violations or future violations of these provisions. Myers and MiddleCove are also ordered to pay, jointly and severally, disgorgement in the amount of $462,022, prejudgment interest of $26,096 and a civil penalty of $300,000. Further, the Order revokes the registration of MiddleCove as an investment adviser and bars Myers from the securities industry.
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