Rehoboth financial advisor faces fraud claims

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.