Nathan Finance Court Case

The Nathan Finance court case, formally known as Securities and Exchange Commission v. Nathan, et al., centered around allegations of a large-scale "cherry-picking" scheme perpetrated by investment advisor Paul Nathan and his firm, Nathan & Lewis Securities, Inc. The SEC accused Nathan and his associates of defrauding their clients by systematically allocating profitable trades to favored accounts, often those of Nathan himself and his family members, while assigning less profitable or even losing trades to client accounts. This practice, known as cherry-picking, is a blatant violation of fiduciary duty and securities laws.

The SEC's complaint detailed how Nathan allegedly identified securities that had appreciated in value after the initial trade order was placed. Instead of allocating these profitable trades fairly across all clients, Nathan and his team purportedly waited until the end of the trading day to determine which accounts would receive the benefits of these profitable transactions. This delayed allocation allowed them to cherry-pick the gains, diverting profits from the collective pool to specific, hand-picked accounts. Conversely, losing trades were disproportionately allocated to other client accounts, effectively shifting the risk and losses away from the favored few.

The scheme allegedly continued for several years, during which time Nathan and his co-conspirators amassed significant personal wealth at the expense of their unsuspecting clients. The SEC meticulously documented the trading patterns and allocation records, demonstrating a clear and consistent bias towards certain accounts. This evidence included trade confirmations, allocation sheets, and client statements that revealed the systematic discrepancies in trade assignments.

The legal proceedings were complex and protracted, involving extensive discovery, expert testimony, and ultimately, a judgment against Nathan and several of his associates. The court found that Nathan had indeed engaged in cherry-picking and violated numerous securities laws, including Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, which prohibit manipulative and deceptive practices in connection with the purchase or sale of securities. He was also found to have violated the Investment Advisers Act of 1940, which imposes a fiduciary duty on investment advisors to act in the best interests of their clients.

As a result of the court's findings, Nathan was ordered to pay substantial penalties and disgorgement, representing the profits he illegally obtained through the cherry-picking scheme. He was also barred from the securities industry, effectively ending his career as an investment advisor. Other individuals involved in the scheme also faced sanctions, including financial penalties and industry suspensions.

The Nathan Finance case serves as a stark reminder of the importance of ethical conduct and compliance with securities laws within the financial industry. It underscores the vulnerability of investors to fraudulent practices and the critical role of the SEC in policing the markets and protecting investors from exploitation. The case also emphasizes the severe consequences that can befall those who violate their fiduciary duty and engage in fraudulent schemes.