Winners for Him, Losers for Clients? SEC Sues Encinitas Adviser in Alleged 'Cherry-Picking' Scheme

Published Oct. 9, 2026. Case statuses are current as of that date.

When an investment adviser buys stock for many clients at once, the trades are often placed in a single pooled "block" account and divided up afterward. Federal regulators say that gap creates an opportunity for abuse: wait to see which trades make money, keep the winners, and hand the losers to clients. That practice is called cherry-picking, and the U.S. Securities and Exchange Commission says a Southern California adviser did exactly that.

On Oct. 6, 2026, the SEC sued Darren J. Caris and his advisory firm, Caris Investment Partners, Inc., of Encinitas, California, in the U.S. District Court for the Southern District of California (No. 26-civ-5714) [1].

Important: This is a civil lawsuit, and the SEC's claims are allegations. No court has ruled on them, and Caris and his firm have not been found liable. As InvestmentNews put it, "The allegations in the complaint have not been tested, and no court has ruled on the merits" [2]. We did not find a public response from Caris or the firm.

How the alleged scheme worked

According to the SEC's complaint, as described in the SEC's litigation release and by InvestmentNews [1][2]:

1. Pooled trades. From December 2023 to April 2024, Caris used his firm's block trading account to place trades.
2. Allocation after the fact. Later in the day, he allegedly "disproportionately allocate[d] profitable trades to his personal account and unprofitable trades to some of his clients' accounts," in the SEC's words.
3. The lopsided results. InvestmentNews, citing the complaint, reported that about 95.8% of block trades allocated to his personal account were profitable, compared with 14.9% of trades sent to 16 client accounts. Over the period, the personal account gained about $158,458 in first-day profits while the client accounts collectively lost about $143,754, across more than $44 million in block trading. A statistical analysis cited in the complaint puts the odds of the pattern occurring by chance at "less than one in a million."
4. One example. The complaint describes a March 5, 2024, purchase of Albemarle Corporation shares at two different prices; according to InvestmentNews, the higher-priced shares allegedly went to three client accounts that lost more than $5,200 on paper, while the lower-priced shares went to Caris's account and were sold the same day for a profit of more than $3,100.

Alleged false statements

The SEC also alleges Caris and his firm made false and misleading statements to clients and prospective clients about how trades were allocated, how conflicts of interest from his personal trading were managed, and why the firm moved to a different broker-dealer custodian [1].

According to InvestmentNews' account of the complaint, the firm's Form ADV brochures said, "We will not favor any account over any other account." The SEC alleges that statement was false. The complaint says a broker employee raised concerns in April 2024 about "preferential block trade allocation[s] . . . made after the outcome of the trade is known," and that the broker later ended the relationship over "concerns with trading." The SEC alleges Caris then told clients in a May 1, 2024, email, "After considerable thought, I have decided to move platforms," citing customer service problems and trading errors, reasons the SEC alleges did not reflect why the relationship ended [2].

Who is being sued

• Darren J. Caris, 55 (age per the complaint, as reported by InvestmentNews), the founder, sole owner and only employee of Caris Investment Partners. The complaint says he has worked in the securities industry since 1993, including about 18 years at broker-dealers [2].
• Caris Investment Partners, Inc., a California corporation based in Encinitas. According to the complaint, it has been registered as an investment adviser with California since September 2019 and with Hawaii since May 2025, and had 64 clients and $54.6 million in regulatory assets under management as of 2025 [2].

The SEC charges both with violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act. It seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties [1]. InvestmentNews reported the SEC is also seeking a court order to permanently ban Caris from the industry [2]. No criminal charges were announced.

Red flags for advisory clients

• Your adviser trades the same securities in their own account and won't explain how block trades are split.
• Consistently worse prices than the adviser seems to get, or many same-day losses on trades you didn't expect.
• No written allocation policy, or a policy that doesn't match what you see on your statements.
• A sudden custodian change with a vague explanation.

What to do

1. Look up your adviser on the SEC's Investment Adviser Public Disclosure site, which shows registrations, Form ADV filings and disciplinary history [3].
2. Read your Form ADV brochure, especially sections on trade allocation, personal trading and conflicts of interest, and ask your adviser to explain them in writing.
3. Compare trade confirmations for the same security on the same day. Ask why your fill price differs from the adviser's or other clients'.
4. Report concerns to the SEC at sec.gov/tcr and to your state securities regulator.

Case status (as of Oct. 9, 2026)

Defendant	Court	Status as of Oct. 9, 2026	Source
Darren J. Caris, 55	U.S. District Court, S.D. Cal. (No. 26-civ-5714)	Sued by SEC Oct. 6, 2026 (civil); allegations unproven; no criminal charges announced	[1], [2]
Caris Investment Partners, Inc. (Encinitas, Calif.)	Same	Sued by SEC Oct. 6, 2026 (civil); allegations unproven	[1], [2]

Allegations in a civil complaint are not findings. Statuses can change.

Sources

1. U.S. Securities and Exchange Commission, "SEC Charges Encinitas Investment Adviser and his Advisory Firm in Alleged Fraudulent 'Cherry-Picking' Scheme," Litigation Release No. 26669, Oct. 8, 2026. https://www.sec.gov/enforcement-litigation/litigation-releases/lr-26669
2. InvestmentNews, "SEC alleges Encinitas advisor cherry-picked winning trades, stuck clients with losses," Oct. 8, 2026. https://www.investmentnews.com/regulation-legal-compliance/sec-charges-caris-investment-partners-in-alleged-cherry-picking-scheme/268543
3. U.S. Securities and Exchange Commission, Investment Adviser Public Disclosure (IAPD), accessed Oct. 9, 2026. https://adviserinfo.sec.gov/

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