Aletheia CEO Peter J. Eichler Jr. Accused of Defrauding Investors, Resulting in $4.4 Million in Losses

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On December 14, 2012, the Securities and Exchange Commission filed a Complaint in US District Court, accusing Santa Monica-based Aletheia Research and Management Inc. and its CEO and one-time Bear Stearns executive, Peter J. Eichler, Jr. (Pacific Palisades, CA), of selecting profitable securities trades for Aletheia's own accounts and those of select clients, while dumping losses into hedge funds held by other Aletheia clients.

According to the SEC's Complaint, Eichler committed securities fraud and violated his fiduciary duty by allegedly running a cherry-picking scheme, in which he allocated winning options trades into his personal accounts and accounts of favored clients. He dumped losing options trades in "disfavored" accounts including those belonging to two of his hedge funds.

The SEC alleged this fraudulent misconduct resulted in $4.14 million in profit to favored accounts and $4.4 million in losses to the disfavored. Eichler was personally found to have repeated $2 million in profit.

According to the Complaint, Eichler's scheme used options transactions in which the allocations of "winning" or "losing" trades to his clients' accounts occurred hours or days after execution. The SEC charges the delays allowed Aletheia and/or Eichler to choose to allocate winning trades into preferred accounts

98.3% of the transactions assigned to Eichler's personal accounts were deemed profitable with a cumulative 19.1% return, compared to just 31.7% profitability amongst trades assigned to the disfavored hedge funds' accounts which yielded a cumulative 1.7% loss.

For instance, in February of 2010, Eichler was found to have purchased 150 Amazon options at $11.45 per share. When the option price rose to $15.20 per share less than two hours later, Eichler allegedly allocated every single closed-out Amazon option trade to his personal trading account, generating a personal profit of over $56,000.

By contrast, on December 31, 2010, Eichler was found to have purchased 175 Newport Mining options at $6.85 per share. When the option price dropped to and closed out at $6.40 per share three hours later, Eichler allegedly allocated every one of these losing Newport Mining trades to a disfavored account.

In November of 2010, former Aletheia chief financial officer Roger Peikin sued the firm, accusing Eichler of using Aletheia as "his personal piggy bank." Peikin's suit, which is still pending, listed Eichler's "millions in compensation," including private jet and hotel accommodations which cost between $10,000 and $18,000 per night as examples supporting his allegations.

On October 1, 2012, the state of California temporarily revoked the firm's corporate status, citing a tax lien against Aletheia for unpaid taxes and penalties in excess of $2 million.

One month later, in November of 2012, Aletheia filed for Chapter 11 bankruptcy protection.

According to the SEC's complaint, Eichler additionally failed to warn investors of Aletheia's financial state—including the state of California's suspension of Aletheia's corporate status—until just two days before the firm's bankruptcy filing.

Finally, the SEC additionally charged Aletheia with failure to implement policies or ethical procedures that could have reasonably prevented the cherry-picking scheme.

We currently represent parties in an arbitration pending against Eichler, Aletheia Research and Management, and Aletheia Securities, Inc. for securities fraud and other claims.

If you have invested with Peter J. Eichler, Jr., Aletheia Research and Management, Inc., or with any other hedge fund manager, broker or firm who you suspect has engaged in fraudulent or deceitful activity, and such misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

See also: SEC charges Calif hedge fund manager in 'cherry-picking' scheme (Thomson Reuters News & Insight)

SEC vs. Aletheia Research and Management and Peter J. Eichler, Jr. (US District Court, Central District of California, CV12-10692).

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