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1
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COMPLAINT
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EXTRACTED KEY WORDS
CLIENTS ADVISERS STOCKS GORDON SLOCUM SECURITIES COMMISSION PROFITS ADVISERS ACT DEFENDANTS SHORT-TERM ACCOUNTS EXCHANGE ASSETS PRACTICE INVESTMENT ADVISER SHORT-TERM TRADING IMPROPER MIXING REGISTERED INVESTMENT ADVISER PRINCIPALS RHODE ISLAND SUBSTANTIAL LOSSES THEREUNDER UNITED STATES DISTRICT RECKLESS DISREGARD PARAGRAPHS ALLEGATIONS INCORPORATES COMMISSION REPEATS |
UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff, :
:
v. : Case No.
:
SLOCUM, GORDON & CO., :
JOHN J. SLOCUM, JR. and :
JEFFREY L. GORDON,
Defendants.
COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF
Plaintiff Securities and Exchange Commission ("Commission") alleges the following
against defendants Slocum, Gordon & Co. ("SGC"), John J. Slocum, Jr. ("Slocum"), and
Jeffrey L. Gordon ("Gordon"):
PRELIMINARY STATEMENT
1. This enforcement action concerns a scheme by SGC, a registered investment adviser
based in Newport, Rhode Island, and two of its principals, Slocum and Gordon, to
illegally divert more than $1 million in short-term trading profits from the firm's clients
to SGC. Beginning as early as 1988 and continuing through mid-2000, Slocum and
Gordon used accounts that improperly mixed their clients' assets with SGC's own assets.
The improper mixing of assets enabled Slocum and Gordon to engage in a practice
known as "cherry picking" -allocating profitable stocks to themselves and unprofitable
stocks to their clients. Specifically,Slocum and Gordon often purchased stocks without
identifying whether they were bought for the firm or for clients. They then waited to
assign the purchases until just before the settlement date (usually three business days
after the purchase), so that they could first determine whether they could make money for
SGC. In many instances when the stock price had risen before the settlement date,
Slocum and Gordon sold stocks that had originally been intended for clients and credited
the profits to SGC. In some instances when the price had fallen before the settlement
date, they even assigned stocks originally intended for SGC to clients instead. As a result
of these practices, Slocum and Gordon enjoyed extraordinary success in their trading for
SGC. For example, Slocum and Gordon realized a profit on virtually all of their trades for
SGC from 1996 until 2000, enabling them to generate more than $1 million in profits for
SGC. As principals of SGC, Slocum and Gordon personally benefitted from the scheme.
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