CHICAGO (CN) - A Chicago money manager cost his clients $2 million, which he pocketed himself, by cherry-picking securities trades after the fact, a class action claims in Federal Court.
Patricia Pomeroy and Enoch Anderson sued GreatBanc Trust Company, Capital Management Associates, Charles J. Dushek and his son, Charles S. Dushek, on Aug. 11.
The plaintiffs were clients of Capital Management Associates, which managed their money in held GreatBanc accounts from 2003 to 2012.
According to the lawsuit: "Charles Dushek Sr. is personal friends with management at GreatBanc. They would regularly attend social events together including parties that Charles Dushek Sr. and Marge Dushek threw at their luxury home."
Given this close relationship, Dushek had a referral system with GreatBanc, and required his clients to deposit their money in a GreatBanc account. He also had at least five of his own accounts with the bank, and made day trades for his own benefit, according to the complaint.
It adds: "GreatBanc, through its GreatBanc Master Account, permitted the Dusheks to make 'block' purchases without making a payment from specific individual accounts until trade had been allocated and settled. Trades entered by the defendants in the GreatBanc Master Account did not differentiate between purchases for the Dushek family accounts and purchases for other GreatBanc accounts. ...
"Use of the GreatBanc Master Account by the Dusheks allowed them to commingle client assets in unallocated trades with inadequate record keeping of the purchases."
For almost a decade, the defendants abused this license to engage "in a fraudulent 'cherry-picking' scheme" by assigning profitable trades to the Dushek family accounts, and unprofitable trades to client accounts, the complaint states.
"Instead of following industry standards and allocating trades at the point of sale, GreatBanc knowingly allowed and actively assisted Charles and Chas Dushek in allocating trades after several days had passed and the profitability of the trades had been determined," the class claims.
From 2008 to 2012, the Dusheks allegedly made $2 million in profits using this scheme, and clients suffered a corresponding $2 million loss.
"In 2011 alone, Charles Dushek Sr. used the cherry-picking scheme to obtain disbursements of up to ten times the amount of assets held in his personal GreatBanc account.
"Many of the unfairly allocated trades were going through Charles and Marge Dushek's GreatBanc accounts with returns in those accounts being 25,000 percent or more over several years," the complaint states.
The SEC charged
Dushek with running a cherry-picking scheme in May 2013. It claimed that Dushek used the illicit profits to make mortgage payments on a 6,500-square-foot luxury home, to buy a Mercedes Benz SL550, membership in a luxury vacation resort, and vacations.
The plaintiffs seek class certification, disgorgement, and damages for securities violations.
They are represented by Vincent DiTommaso with DiTommaso Lubin, of Oakbrook Terrace.