According to the Justice Department, William Carleton kept profitable trades for himself while assigning losing positions to clients.
A Seattle-based former advisor who previously worked with Cetera pleaded guilty to a multi-year scheme of cherry-picking trades at the expense of his clients, according to the Justice Department.
William Carleton pleaded guilty in federal court in New York to securities fraud, with a maximum sentence of 20 years in prison.
According to U.S. Attorney Jamie McDonald, Carlton “admitted to systematically steering profitable trades to himself while leaving losing trades for his clients,” and “abusing that trust for personal gain.”
According to court documents, Carlton was an investment advisor for up to of 50 clients, managing trading accounts with discretionary authority to buy and sell securities. SEC records show he registered with Vertical Asset Management in 1999 and had an 11-year tenure at First Allied Securities before joining Cetera in 2020.
From January 2015 through about August 2022, Carlton would cherry-pick stocks by purchasing securities in his personal trading account and monitoring price movements throughout the trading day.
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If a stock price jumped during that time, Carlton would typically sell the stock that same day and pocket the profits, but if the price of a stock went down during that same period, he’d assign the loss to a client’s account.
In total, about 70% of trades in Carlton’s own accounts posted same-day gains, compared with only 16% of trades in Carlton’s clients’ accounts (and 84% of them experienced losses). Carlton pocketed about $6 million in fraudulent profits through the scheme.
The Securities and Exchange Commission began investigating the trades, and Carlton told them he’d never made trades in his personal accounts to reassign them to clients’ accounts later, claiming that he’d placed all client trades individually in each client’s accounts.
According to SEC records, the agency launched an investigation in 2022, and Cetera fired Carlton in late 2023 due to “inappropriate trading practices.”
A Cetera spokesperson said that “upon learning about this issue, Cetera acted promptly to cease the activity and previously terminated this individual’s affiliation with Cetera. We have enhanced our processes to prevent any similar actions in the future. Cetera has fully cooperated with the SEC and the United States Attorney’s Office and will continue to do so as they pursue actions against this individual.”
In 2024, the SEC brought charges against Carlton, claiming he’d made millions in “ill-gotten gains” based on his process of cherry-picking trades.
Related:SEC Settles With Canadian Broker Over Alleged AML Failures
Over the next several years, there were numerous customer disputes alleging, among other things, “misrepresentation, negligence, breach of contract, and breach of fiduciary duty.” One such dispute was settled for $1.75 million.
Patrick Donachie is a senior reporter for Wealth Management, covering federal and state regulation, litigation and M&A deals in financial services. Patrick was born in Staten Island, and now lives in Brooklyn, N.Y.
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