Conn. investment firm fined $100K for trading, compliance failures

In its settlement with the SEC, Birinyi Associates of Westport, Conn., agreed to pay the fine, cease and desist all activity that violated securities laws, and to be censured. The firm has $288 million in assets and 89 individual clients, the SEC said.

The SEC alleged that from 2014 to 2019, Birinyi made block trades for its investors but treated day trading clients differently from buy-and-hold clients. Birinyi “sometimes allocated trades where a security’s price increased during the trading day to the day-trading clients rather than hold the stock for investment by the clients that followed the buy-and-hold strategy,” a practice the SEC found “was unfair to certain advisory clients and inconsistent with the firm’s disclosures and internal policies,” the SEC wrote in a press release.

In the settlement, Birinyi Associates told investigators the firm “did not consider its practice of capturing profitable day trades for day trade clients unfairly benefited those clients at the expense of buy-and-hold clients, because the buy-and-hold clients earned significantly higher average annual returns during the relevant period than the day trade clients.”

But the SEC rebutted that claim in the settlement, saying day trade clients “received risk-free profits, while the buy-and-hold clients bore all the risk on the day trade clients’ behalf.” The first day returns of buy-and-hold clients “were negatively affected by the allocation of profitable day trades to the day trade clients,” the SEC said. The practice of treating the two types of clients differently was also not consistent with disclosures the firm made to the SEC.

In particular, the firm violated a disclosure it attested to on SEC Form ADV Part 2A, which stated: “We owe a fiduciary duty to our clients not to favor the account of one client over that of another [and] have allocation policies and procedures in place to ensure that accounts are treated fairly.”

In the settlement, the SEC said the firm “failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with the allocation of profitable day trades to client accounts.”