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World Tree Financial, Wesley and Priscilla Perkins, Cherry-Picked Certain Securities Trades According to SEC Lawsuit

On September 18, 2018, the SEC initiated a civil action (the “Complaint”) against Defendants World Tree Financial, LLC (“World Tree”), Wesley Kyle Perkins (“Perkins”), and Priscilla Gilmore Perkins (“Gilmore”).  The Complaint alleges that Perkins and Gilmore, husband and wife owners of World Tree, engaged in a purported “cherry-picking” scheme.  Specifically, the SEC has alleged that World Tree would routinely allocate winning trades to themselves or favored clients at the conclusion of the trading day, to the detriment of disfavored clients who received the losing trades.  As alleged in the Complaint, this practice, referred to in the securities industry as “cherry-picking”, amounts to an impermissible allocation of trades in violation of various securities laws, including Sections 209(d), 209(e)(1), and 214 of the Investment Advisers Act of 1940 (“Advisers Act”).

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World Tree was co-founded in 2009 by Perkins and Gilmore and is structured as a Louisiana corporation with its principal place of business in Lafayette, LA.  Until June 15, 2012, World Tree was registered with the SEC as a registered investment advisor (“RIA”), at which time it withdrew its registration.  Currently, Word Tree remains registered in the State of Louisiana as an investment advisor.

As alleged by the SEC, World Tree manages all of its clients’ assets on a discretionary basis, meaning that it has authorization to trade securities on behalf of its clients.  According to the Complaint, from December 2009 – October 2015, World Tree conducted all of its trades through an omnibus account at a third-party registered broker-dealer.  As alleged in the Complaint: “In general, an omnibus trading account allows an investment advisor to buy and sell securities on behalf of multiple clients simultaneously, without identifying to the broker in advance the specific accounts for which a trade is intended.”

Essentially, the SEC has alleged that the Defendants misused their omnibus account from “[a]t least March 2011 through September 2015.”  As further alleged by the SEC, in April 2015, World Tree’s third-party broker-dealer “[i]nternally determined, based on a sampling analysis, that when trading in the same security, accounts held by World Tree, Perkins and Gilmore performed substantially better than their clients’ accounts.”  It should be noted that following this analysis, the broker purportedly requested that Defendants “[p]rovide materials showing how the firm was allocating trades”, and that when this request was allegedly ignored, the third-party broker-dealer terminated its relationship with Defendants in September 2015.

According to the SEC, World tree’s purported cherry-picking was enabled by the fact that the disfavored accounts receiving a disproportionate number of losing trades were among World Tree’s largest accounts, and thus “[w]ere large enough to absorb incremental, though steady, trading losses without arousing client suspicion that the losses were due to fraud.”  As further alleged in the Complaint, World Tree’s Form ADVs, as filed with the SEC and State of Louisiana, respectively, purportedly contained materially false and misleading statements.  For example, in various World Tree Form ADVs filed from March 2011 – September 2015, Defendants represented, among other allegedly false and misleading statements, that: “World Tree allocates investment opportunities among its clients on a fair and equitable basis … To the extent that World Tree determines to aggregate client orders … World Tree shall generally do so in accordance with applicable rules promulgated under the Advisers Act and non-action guidance provided by the staff of the U.S. Securities and Exchange Commission.”

Investors who wish to discuss a possible claim may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.  Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).

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