SEC whacks NY firm for helping San Diego adviser

The Securities and Exchange Commission (SEC) on December 26 sanctioned New York-based Instinet for ignoring signs that San Diego's J.S. Oliver Capital Management was ripping off its clients. Instinet agreed to pay $800,000 to settle the charges.

In August, as reported here, the securities agency charged that J.S. Oliver was engaging in an odious practice called "cherry-picking." At the end of a trading day, the firm was steering winning trades to hedge funds in which the president, Ian O. Mausner, and his family had invested. Less profitable trades were doled out to other clients, including a widow and a charitable foundation. The disfavored clients suffered more than $10 million in damages.

Also in August, the SEC charged that Mausner and his firm misused so-called soft dollars, which are a means of paying firms for their services in commission revenue, instead of in a direct payment, or cash. The SEC charged, among many things, that Mausner and his firm misappropriated more than $1.1 million in soft dollars for purposes that in no way benefited clients, such as payments to Mausner's ex-wife related to their divorce. There were other rank abuses, charged the agency, such as money going to Mausner's personal timeshare in New York, and more than $300,000 in "rent" for Oliver to conduct business at Mausner's home.

Yesterday's action against Instinet sheds more light on this activity. The SEC charged that Instinet ignored clear signals that the soft-dollar payments were improper. The agency says that Instinet knew that Mausner owned the company, Oliver, to which the rent was paid for Mausner's at-home work. In addition, J.S. Oliver provided Instinet with "inconsistent reasons" for the payments to Mausner's ex-wife, says the SEC.

Instinet willfully aided, abetted, and caused J.S. Oliver's violations of securities laws, says the SEC.