UNITED STATES SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 ("Advisers Act") against Donald J. Kellen ("Respondent"). The Commission finds that on September 16, 2022, a final judgment was entered by consent against Kellen, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Donald J. Kellen, Civil Action Number 2:20-cv-03861, in the United States District Court for the Central District of California. The Commission's complaint alleged that, in connection with the offer, purchase, or sale of securities, Kellen engaged in a scheme to defraud clients, and engaged in acts, practices or courses of business that operated as a fraud upon clients, by placing trades for himself and his clients in an omnibus account from which shares or proceeds of trades could be, and were, allocated to specific accounts after the trades were made, and cherry-picking profitable trades for his own accounts and allocating unprofitable trades to his clients' accounts.

Order

Bar (Permanent)

association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO

Indefinite

9/27/2022

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission (the "Commission") brings this action to enjoin Donald J. Kellen ("Kellen") from further violations of the anti-fraud provisions of the federal securities laws. The Commission alleges that this case is about a "cherry-picking" scheme carried out by investment adviser representative ("IAR") Kellen. From September 2011 through September 2015, Kellen served as the IAR for approximately 40 clients of Laurel Wealth Advisors, Inc. ("LWA"). As is the case at many advisory firms, Kellen traded securities on behalf of his clients in an "omnibus account," and then allocated each trade to individual client accounts. Because these allocation instructions may be submitted to the brokerage firm after trades are executed, an adviser using an omnibus account to trade has the opportunity to "cherry-pick"-that is, to allocate the winning trades to some favored accounts, and allocate the losing trades to other disfavored accounts. That is what Kellen did. For more than three years, Kellen engaged in a "cherry-picking" scheme, purchasing securities in his omnibus account but delaying the allocation of those securities to individual accounts until after he had observed the securities' price movement during the rest of the trading day. With the benefit of that knowledge, Kellen disproportionately allocated profitable trades to his personal accounts and disproportionately allocated unprofitable trades to his clients' accounts. Kellen profited from this scheme at his clients' expense. By engaging in this cherry-picking scheme, Kellen violated the fiduciary duties he owed to his clients, and violated the antifraud provisions of the federal securities laws. By engaging in this conduct, Kellen violated the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.

Judgment Rendered

Civil and Administrative Penalty(ies)/Fine(s)

Disgorgement

$51,157.00

Monetary Penalty other than Fines

Injunction

CUSTOMER ALLEGES UNSUITABLE RECOMMENDATION AND MISREPRESENTATIONS REGARDING PURCHASE OF AUCTION RATE SECURITIES.

$72,000.00

$45,000.00

CUSTOMER ALLEGES THAT AT THE TIME OF HIS PURCHASE, THE BROKER MISREPRESENTED TO HIM THAT THE SUBJECT INVESTMENT WAS SAFE, LIQUID AND INSURED, AND THAT THE BROKER ALSO FAILED TO DISCLOSE THE FACT THAT THE ARS MARKET HAD ALREADY COLLAPSED. ALLEGED DATE IS 6/12/2008.

$200,000.00

BROKER DENIES MISREPRESENTATION. THE CLIENT IS SOPHISTICATED AND KNOWLEDGEABLE ABOUT ARS PRODUCTS AND HAD PURCHASED THE SAME PRODUCTS FROM THE BROKER BEFORE. THE CLIENT WAS FULLY AWARE OF MARKET EVENTS. HE NONETHELESS MADE THE INFORMED AND INDEPENDENT DECISION TO MAKE THE PURCHASE.

CUSTOMER ALLEGES UNSUITABILITY, EXCESSIVE AND UNAUTHORIZED TRADING, FAILURE TO FOLLOW INSTRUCTIONS, AND FAILURE TO PROPERLY MANAGE HER ACCOUNT DURING THE PERIOD OF AUGUST 2003-2009.

$820,000.00

$75,000.00

BROKER DENIES ALL THE ALLEGATIONS IN FULL. CUSTOMER WAS AWARE OF ALL PURCHASES AND SALES. THE CUSTOMER CHOSE TO SELL THE SECURITIES AGAINST THE ADVICE OF HER BROKER.

CUSTOMER ALLEGES UNSUITABILITY AND EXCESSIVE USE OF MARGIN DURING THE PERIOD 2004 THROUGH AUGUST 2008.

$300,000.00

$65,000.00

CUSTOMER ALLEGES MISMANAGEMENT OF ACCOUNT, INCLUDING FAILURE TO DIVERSIFY AND EXCESSIVE USE OF MARGIN, FROM JUNE 2008 - OCTOBER 2008.

$121,525.00

$43,000.00

THE BROKER DENIES CLAIM IN FULL. THE ACCOUNT ACTIVITY REFLECTS INVESTMENTS THAT WERE CONSITENT WITH THE CLIENTS STATED INVESTMENT OBJECTIVES AND CUSTOMER PROFILE.

CLIENT ALLEGES BROKER FAILED TO FOLLOW INSTRUCTIONS TO REMOVE CLIENT FROM MARGIN

$22,000.00

CUSTOMER ALLEGES BROKER CHARGED EXCESSIVE COMMISSIONS ON LIQUIDATION OF ACCOUNT AND FAILED TO REDUCE MARGIN EXPOSURE LEADING TO LOSSES.

THIS FORMER CUSTOMER COMMENCED AN NASD ARBITRATION PROCEEDING SEEKING ACTUAL DAMAGES OF $67,500, UNSPECIFIED PUNITIVE DAMAGES, INTEREST AND ATTORNEYS FEES. THE STATEMENT OF CLAIM ALLEGES THAT AFTER HAVING HANDLED THE CLAIMANT'S ACCOUNT IN A CONSERVATIVE MANNER FOR MORE THAN TEN YEARS, I ENGAGED IN A SPECULATIVE, UNSUITABLE AND UNAUTHORIZED OPTION TRADING STRATEGY IN THE CLAIMANT'S ACCOUNT. THE STATEMENT OF CLAIM ALLEGES THAT THE OPTION TRANSACTIONS RESULTED IN LOSSES IN EXCESS OF $60,000 AND COMMISSIONS IN EXCESS OF $7,500 AND ASSERTS CAUSES OF ACTION FOR NEGLIGENCE, BREACH OF CONTRACT, BREACH OF FIDUCIARY DUTY AND FRAUD. PREVIOUSLY REPORTED.

$67,500.00

$12,000.00

CUSTOMER WAS AWARDED $12,000.00. Not Provided

REFER TO OCCURENCE #4 THE COMPLAINT ALLEGED TRADING WITHOUT PROPER PAPERS, MARGIN AND POWER OF ATTORNEY.

$195,000.00

THE COMPLAINT WAS SETTLED WITHOUT BENEFIT OF ARBITRATION OR LEGAL PROCEEDINGS BY DREXEL BURNHAM LAMBERT INC. FOR $195,000 AND I AGREED TO BE RESPONSIBLE FOR 40% OF THIS AMOUNT. Not Provided