Rehoboth financial advisor faces fraud claims

Lawsuit: Fund benefited family members at clients’ expense

A lawsuit against a Rehoboth financial advisor has been filed in U.S. District Court in Philadelphia. US COURTS PHOTO

Melissa Steele

March 4, 2022

Event Date:

Tue, 03/01/2022 - 04:15 pm

A lawsuit against a Rehoboth financial advisor has been filed in U.S. District Court in Philadelphia. US COURTS PHOTO

Attachments:

1-main.pdf

A Rehoboth Beach financial advisor faces more than $150,000 in damages in connection with claims that she defrauded clients through her multimillion-dollar investment fund over a four-year period.

The Securities and Exchange Commission filed a civil suit Feb. 25 in the U.S. District Court for Pennsylvania’s eastern district against Cassandra Toroian and her Bell Rock Capital company, alleging Toroian made trades to benefit herself and family members while posting losses for other fund investors.

Toroian founded the company in 2006, eventually serving up to 200 clients and managing as much as $220 million in assets, according to the lawsuit. A website for Bell Rock includes several video clips of Toroian speaking on financial news programs such as CNBC and Fox Business. Her LinkedIn account states she was the 1999 Wall Street Journal’s all-star analyst based on her success in stock picking – an honor which placed her among the top five analysts in the country.

But things started to sour in 2016, according to the lawsuit, when a broker terminated Toroian’s business, claiming she cherry-picked trades. Cherry-picking is described as a process of buying and selling funds, but giving profits to only a few investors and posting losses to the rest.

“Toroian knew, or was reckless in not knowing, that she disproportionately allocated favorable trades to the Toroian accounts and disproportionately allocated unfavorable trades to the client accounts,” the lawsuit states. “Bell Rock and Toroian breached their fiduciary duties to their advisory clients by engaging in a cherry-picking scheme.”

Over the four-year period from 2011-15, the lawsuit states, Toroian and her family earned more than $1 million. The suit states Toroian used a master account to day trade assets, most of which she would then put in her personal and family accounts if they posted gains, or put in her clients’ accounts if they posted losses. Based on one day of trading, the lawsuit states, the SEC examined her 50 best trades, which increased more than $1.5 million on that day, and she put 75% of the gains into her accounts.

Conversely, the lawsuit states, the SEC examined 50 of the worst-day trades, which decreased about $1.9 million, and she passed 94% of those losses on to her clients.

Overall, the lawsuit states, Toroian’s accounts increased about 2% while her clients posted 1.3% losses.

Toroian expected her clients would not notice their losses, the lawsuit states, but some of them did. “Those clients had not asked Toroian to allocate such poorly-performing trades to their accounts,” the lawsuit states.

In addition to defrauding her clients, the lawsuit states, Toroian failed to maintain records or inform other Bell Rock employees of her trade executions.

Both Toroian and Bell Rock face charges of fraud in connection with the purchase or sale of securities, fraud in the offer or sale of securities, and fraud by an investment advisor. Toroian also faces a charge of aiding and abetting fraud by an investment adviser.

The SEC is asking a judge to order Toroian and Bell Rock to pay civil penalties, and to also disgorge all funds received, directly or indirectly, from her illegal conduct together with prejudgment interest.

‘Bold-face lies’

Cassandra Toroian vows to fight lawsuit until the end

Cassandra Toroian may be small in stature, but she’s ready to take on the big boys at the Securities and Exchange Commission.

“I chose to not settle this situation with our regulator because I could see very clearly that they use bullying, threats, mental torture, whatever they can do, to settle with them and write them a check,” said Toroian, owner and financial advisor at Bell Rock Capital, a firm she founded in 2006.

Toroian said she is ready to fight a fraud lawsuit filed against her Feb. 25 by the SEC, even if it takes years to clear her name.

Her ordeal began three years ago when the SEC contacted Toroian about stock trades she made for her fund. Since then, the commission has offered her the opportunity to settle several times, with varying terms. Toroian said by law she is not allowed to give details on what was offered.

“How do you agree to settle something when you did nothing wrong, and you know it?” she said.

The lawsuit comes down to a procedural matter based on statistical research that is unfounded, focusing on arbitrary numbers and data, Toroian said.

“The data they have used has been whittled down,” she said. “It’s very contrived.”

The lawsuit focuses on 50 trades she made on one day that made the most money, and it claims she put the gains in accounts controlled by her. Using data from another day, the lawsuit states, Toroian recorded losses from 50 trades and posted those losses to accounts held by her clients.

These statistical calculations, however, are skewed because they only analyze a handpicked universe of equity trades over a single-day span, Toroian said, instead of looking at actual long-term performance. “Some of the stocks they questioned are stocks my clients still own today,” she said.

Toroian said she has fully cooperated with the SEC, giving the commission hundreds of documents she has kept since she started the fund. Regulations require that a financial institution keep five years of records, Toroian said, but she has kept her files since the beginning.

“It’s not like they didn’t have the opportunity to read it all, but they haven’t,” she said.

The SEC is also supposed to audit her company every five years, Toroian said, but it never has. She said she has paid auditing companies to do the job the SEC is supposed to do.

The tactics the SEC has used to try and persuade her to settle are bizarre, she said, and she hopes a court case exposes them.

“I can fight and shed light on this because they do this kind of thing all the time,” Toroian said. “No one oversees and holds them accountable, and as the years have gone on, it’s gotten worse and worse.”

The amount of information that has been twisted in the complaint, she said, is beyond her comprehension. “I had no idea a regulator could file a lawsuit and actually say things in their complaint that are just bold-face lies,” she said.

In particular, Toroian said, the lawsuit’s reference to an investigation by her first broker never happened. “[The broker is] not implementing proper procedure on their trading desk,” she said. “And I keep saying why aren’t they being made to follow the rule. You’re allowing this to happen to people because had they known what the rule was, they wouldn’t have done a trade like that.”

Toroian said the lawsuit’s claims that she curtailed trading because of restrictions placed by her second broker are also false.

“That statement about the second broker is a complete lie. Not true 100%,” she said. “And that’s what is so unbelievable, that they can say things that are absolutely not true, and then people read this stuff. That can be very harmful.”

Toroian said she has a crew of attorneys in Philadelphia and Washington, D.C., representing her in this case. They intend to file a motion for dismissal, she said.

Recalling a conversation she had with her father before he passed, Toroian said he told her to always fight for what is right. “So that’s what I’m doing,” she said. “Fighting for what is right is not always the easy path, but it’s the path that I know is the right path.”

A lawsuit against a Rehoboth financial advisor has been filed in U.S. District Court in Philadelphia. US COURTS PHOTO