Ex-CEO Of Nebraska RIA Used Cherry-Picking Scheme To Defraud Clients

The former CEO of a Lincoln, Neb., registered investment advisory firm has been charged by the Securities and Exchange Commission with engaging in a cherry-picking scheme that defrauded his clients.

The SEC complaint said Corbin L. Lambert, 47, founder of Continuum Financial, conducted the scheme from at least January 2017 through March 2018. It said Lambert blocked purchasing securities in the form of options in Continuum’s omnibus account but delayed the allocation of those securities to individual accounts until after he had observed the securities’ price movement during the rest of the trading day.

With that knowledge, Lambert disproportionately allocated profitable trades to his personal account and disproportionately allocated unprofitable trades to his clients’ accounts, the complaint said. Lambert’s favored personal account enjoyed first-day trading profits and positive trading returns, while his clients suffered first-day trading losses and negative trading returns, the complaint said.

Lambert, the SEC complaint noted, also made material misrepresentations to his investment advisory clients in Continuum’s Form ADV, which he reviewed, approved, and signed. It said Lambert falsely represented that in placing certain types of trades, Continuum would ensure fairness; would not engage in trading that operated to disadvantage clients; and would employ documentation and review protocols to prevent conflicts of interest. Furthermore, Continuum did not document Lambert’s conflicted options trading, nor did it conduct periodic reviews of block trading.

The SEC said Lambert, who founded Continuum in 2007 under another name, brought on two partners and formed Continuum in 2016. Lambert has also been a registered representative with Securities America Inc. since 2015, the complaint said.

The complaint noted that Continuum used Charles Schwab & Co., Inc. as its custodian broker-dealer for its client accounts, but Lambert was fired from Schwab’s trading platform in April 2018 after Schwab’s internal fraud alert system two months earlier detected Lambert was using Continuum’s omnibus trading account to day trade options for his personal account, to the detriment of his clients. The complaint said Schwab confronted Lambert with its suspicions the following month.

Lambert, the complaint said, informed his partners that Schwab had contacted him but misled them as to why. Lambert’s partners subsequently removed him as the firm’s CEO once Lambert’s partners learned of his improper trading allocations, though he remains an advisor with Continuum, the SEC said.

By engaging in this cherry-picking scheme, Lambert violated the fiduciary duties he owed to his clients as an advisor and violated the antifraud provisions of the federal securities laws.

The complaint pointed out that during the more than yearlong scheme, Continuum’s assets under management grew from $28.7 million to $35.6 million. According to its most recent Form ADV, dated March 23, its assets under management rose to $39.9 million. The firm has more than 200 clients and manages all accounts on a discretionary basis, charging a fee of 2.5% of assets under management, the complained noted.

The SEC’s complaint, filed in the U.S. District Court for the District of Nebraska, charges Lambert with violating the antifraud provisions of the Securities Exchange Act and the Investment Advisers Act. The SEC seeks disgorgement of all funds received from Lambert’s illegal conduct and ordered him to pay civil penalties.

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