June 5, 2013
Previously published on May 30, 2013
In a recent enforcement action (SEC v. Charles J. Dushek, et al., Civil Action No. 13-CV-3669, N.D. Ill., filed May 16, 2013), the SEC accused a father (Charles J. Dushek) and son (Charles S. Dushek) with defrauding clients by “cherry picking” investments over the interests of their clients, a scheme that resulted in their profiting almost $2 million. The Dusheks and their Chicago-area registered investment advisory firm, Capital Management Associated, are charged with grouping orders for securities transactions among its clients with the father and son’s personal accounts and then cherry picking the profitable trades for their own accounts while leaving the unprofitable trades for client accounts. Many of the clients were senior citizens. The transactions occurred over a period from 2008 to 2012 and consisted of more than $13,500 purchases of securities totaling more than $350 million. To demonstrate the proficiency of the Dusheks in keeping the profitable trades for themselves and depositing the losers in client accounts, during a period of 17 consecutive months, the Dusheks had positive returns during the entire period while client accounts had negative returns during that same period. The father’s account during the time increased in value by almost 25,000 percent while most of his client account suffered a decrease in value. The advisory firm’s brochure provided to clients and prospective clients falsely stated that the elder Mr. Dushek personal trades were separately reviewed by an associate when in fact he did not maintain any trading records on site at the firm for anyone to review. The SEC’s complaint cites violations by the Dusheks and their advisory firm of the anti-fraud provisions under the Advisers Act as well as similar violations under other federal securities law. The SEC has asked the court for a permanent injunction, civil penalties, disgorgement, and prejudgment interest, along with other relief against each of the defendants.
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