Rehoboth financial adviser faces fraud claims

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A Rehoboth Beach financial adviser is facing more than $150,000 in damages in connection with allegations that she defrauded clients through her multimillion-dollar investment fund over a four-year period .

The Securities and Exchange Commission filed a civil lawsuit Feb. 25 in the U.S. District Court for the Eastern District of Pennsylvania against Cassandra Toroian and her company Bell Rock Capital, alleging that Toroian conducted trades for her benefit and that of members of his family while incurring losses for other fund investors.

Toroian founded the company in 2006, eventually serving as many as 200 clients and managing up to $220 million in assets, according to the lawsuit. A website for Bell Rock includes several video clips of Toroian speaking on financial news programs such as CNBC and Fox Business. Her LinkedIn account says she was the Wall Street Journal’s featured analyst in 1999 because of her success in stock picking — an honor that placed her among the top five analysts in the nation.

But things started to go downhill in 2016, according to the lawsuit, when a broker terminated Toroian’s business, claiming it had picked trades. Cherry picking is described as a process of buying and selling funds, but giving profits to only a few investors and registering losses for others.

“Toroian knew, or was reckless in not knowing, that it was disproportionately attributing favorable transactions to Toroian accounts and disproportionately attributing unfavorable transactions to client accounts,” the lawsuit states. “Bell Rock and Toroian breached their fiduciary duties to their client advisors by engaging in a screening scheme.”

During the four-year period from 2011 to 2015, according to the lawsuit, Toroian and his family earned more than $1 million. The lawsuit says Toroian used a master account to trade overnight assets, most of which would then be placed in its personal and family accounts if they showed gains, or in its clients’ accounts if they showed gains. losses. Based on one trading day, the lawsuit says, the SEC reviewed its top 50 trades, which rose more than $1.5 million that day, and placed 75% of the gains on its accounts.

Conversely, according to the lawsuit, the SEC reviewed 50 of the worst-case trades, which declined by about $1.9 million, and it passed on 94% of those losses to its clients.

Overall, the lawsuit says, Toroian’s accounts grew about 2% while its customers posted losses of 1.3%.

Toroian expected his clients not to notice their losses, the lawsuit states, but some of them did. “These customers had not instructed Toroian to allocate these poorly performing transactions to their accounts,” the lawsuit states.

In addition to defrauding its customers, the lawsuit says, Toroian failed to keep records or inform other Bell Rock employees of its business executions.

Toroian and Bell Rock face charges of fraud in connection with the purchase or sale of securities, fraud in the offer or sale of securities and fraud by an investment adviser. Toroian also faces a charge of aiding and abetting investment adviser fraud.

The SEC is asking a judge to order Toroian and Bell Rock to pay civil penalties and also return all funds received, directly or indirectly, from its unlawful conduct, along with prejudgment interest.

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