2026-03-06 sec-litreleases pdf 251 KB 25,784 chars

SEC v. MATTHEW J. WERTHE DBA HSR WEALTH MANAGEMENT, No. 3:23-cv-815, Southern District of California (Mar. 6, 2026)

raw: SEC v. MATTHEW J. WERTHE dba HSR

SEC v. MATTHEW J. WERTHE dba HSR, No. 3:23-cv-815 (Mar. 6, 2026)

Caption: Securities and Exchange Commission v. Matthew J. Werthe

Enriched metadata

Scheme: investment-adviser-fraud (100%)
Court: Southern District of California
Case No.: 3:23-cv-815
Disgorgement: $507,996
Victim loss: $70,000,000
Victims: 50

Classified investment-adviser-fraud(confidence 100%). EDGAR detection: forms ADV/ADV-E/ADV-W/Form D· recall 33% / precision 13%. detection rule →

Extracted insights

Dollar amounts 10

$70.00M $70 million $10M–$100M
$12.00M $12 million $10M–$100M
$1.18M $1,182,251 $1M–$10M
$591K $591,127 $100K–$1M
$508K $507,996 $100K–$1M
$236K $236,451 $100K–$1M
$118K $118,225 $100K–$1M
$118K $118,225 $100K–$1M
$112K $112,340 $100K–$1M
$12K $11,823 $10K–$100K

Entities 3

company Hsr Wealth Management
person matthew j. werthe
company Td Ameritrade

Triples 8

United States Securities and Exchange Commission filed motion for monetary and injunctive relief securities fraud action
Court granted SEC's motion for monetary and injunctive relief
Defendant Matthew J. Werthe started HSR Wealth Management in June 2019
Defendant Matthew J. Werthe was sole owner, employee, and chief compliance officer of HSR
Defendant Matthew J. Werthe had discretionary authority over clients’ brokerage accounts to trade on their behalf
Defendant Matthew J. Werthe conducted most securities transactions through block trading account at TD Ameritrade
TD Ameritrade served as broker-custodian for Werthe Account and Client Accounts
TDA representative told Mr. Werthe to avoid trading the same security on the same day as his clients on September 29, 2021

PDF

SEC v. MATTHEW J. WERTHE dba HSR · Source

Text layers

Extracted body text (25,784c)

23cv0815-L-DDL

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

MATTHEW J. WERTHE dba HSR

WEALTH MANAGEMENT,

Defendant.

Case No.: 23cv0815-L-DDL

ORDER GRANTING SECURITIES

AND EXCHANGE COMMISSION’S

MOTION FOR MONETARY AND

INJUNCTIVE RELIEF

[ECF No. 36]

Pending before the Court in this securities fraud action is a motion for monetary

and injunctive relief filed by Plaintiff United States Securities and Exchange Commission

(“SEC”). (ECF No. 36.) Defendant Matthew J. Werthe, proceeding pro se, filed a

response (ECF No. 37), and the SEC replied (ECF No. 38). The Court decides the matter

on the papers submitted without oral argument. See Civ. L. R. 7.1(d)(1). For the reasons

stated below, the motion is granted.

/ / / / /

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I. BACKGROUND1

In June 2019, Defendant Matthew J. Werthe started HSR Wealth Management

(“HSR”),2 a California-registered investment adviser. Mr. Werthe was the sole owner,

employee, and Chief Compliance officer of HSR and was solely responsible for all its

day-to-day activities. He was in the business of providing investment advice regarding

equity stocks, fixed income securities, bonds, exchange traded funds (“ETFs”), mutual

funds, and cash equivalent instruments. His clients paid him advisory fees based on a

percentage of assets under management. Mr. Werthe had discretionary authority over his

clients’ brokerage accounts to trade on their behalf without prior permission. As of

March 2022, he had over 50 clients and over $12 million in assets under management.

Defendant conducted most of his clients’ securities transactions through a block

trading account (the “Block Account”) at TD Ameritrade (“TDA”). The purpose of a

block trading account is to aggregate multiple clients’ trades through a large “block”

transaction, and subsequently allocate those trades using an average execution price. An

investment adviser would abuse block trading if he waited to see whether the stock price

rose or fell and allocated the trade based on pre-allocation stock performance rather than

the average execution price.

Defendant was solely responsible for placing trades through the Block Account

and allocating them between his clients’ brokerage accounts (“Client Accounts”) and his

own brokerage account (“Werthe Account”). TDA was the broker-custodian which held

the Werthe and Client Accounts, and through which Defendant executed the trades and

allocations.

/ / / / /

1 Background facts are taken from the joint statement of undisputed facts previously

filed with summary judgment briefing. (ECF No. 29.)

2 Mr. Werthe and HSR are sometimes collectively referred to as Defendant.

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In the fall 2021, TDA’s data showed that Defendant was engaged in preferentially

allocating day-trades to the Werthe Account. On or about September 29, 2021, a TDA

representative told Mr. Werthe that he should avoid trading the same security on the same

day as his clients to avoid receiving a better price. On or about October 21, 2021, another

TDA representative questioned Mr. Werthe about his block trading, account allocations,

and inconsistencies between the representations to Defendant’s clients and the actual

trading practices. The same representative again spoke with Mr. Werthe on March 4,

2022, and confronted him, among other things, about the broken assurance that he would

stop allocating day-trades to the Werthe Account and failure to retain allocation records.

On or about March 25, 2022, TDA shut down the Block Account and terminated its

relationship with HSR due to concerns about trading activity.

The SEC filed this action alleging that Defendant “cherry picked” the trades, i.e.

disproportionately allocated trades that were profitable at the time of allocation to the

Werthe Account and the trades that were unprofitable at the time of allocation to the

Client Accounts. The SEC expert and financial economist Rachita Gullapalli, Ph.D.,

analyzed TDA trading and market data and concluded that Defendant had engaged in

cherry picking. The SEC also alleged that Defendant made false or misleading

representations to his clients regarding his trading practices.

Based on the foregoing, the SEC alleged five causes of action. In the first cause of

action the SEC claims that by cherry picking Defendant engaged in a scheme to defraud

his clients and that he engaged in additional deceptive acts by making false and

misleading statements. The SEC contends that this conduct constitutes fraud in

connection with the purchase or sale of securities in violation of 15 U.S.C. §78j(b) and 17

C.F.R. § 240.10b-5(a) & (c).3 In the third cause of action the SEC claims that by the

3 Title 15 U.S.C. §78j(b) is sometimes referred to as Section 10(b) of the Securities

Exchange Act of 1934 (“Exchange Act”). Title 17 C.F.R. § 240.10b-5, the regulations

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same conduct Defendant also committed fraud in the offer or sale of securities in

violation of 15 U.S.C. § 77q(a)(1) and (3).4 The first and third causes of action are

collectively referred to as the “Fraudulent Scheme Claims.”

In the second cause of action the SEC claims that by making false statements to his

clients, Defendant engaged in fraud in connection with the purchase or sale of securities

in violation of 15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b). Based on the same false

statements, in the fourth cause of action the SEC claims that Defendant also committed

fraud in the offer or sale of securities in violation of 15 U.S.C. § 77q(a)(2). The second

and fourth causes of action are collectively referred to as the “False Statement Claims.”

In the fifth cause of action the SEC claims that by cherry picking and making false

and misleading statements, Defendant breached his fiduciary duty to his clients. The

SEC contends that this conduct constitutes fraud by an investment adviser in violation of

15 U.S.C. §80b-6(1) and (2)5 (the “Investment Adviser Claim”).

The SEC had previously filed a summary judgment motion which the Court

granted insofar as the Court found that no genuine issue of material fact existed as to

Defendant’s liability on all claims. (ECF No. 32, “MSJ Order.”) The issue of remedies

was not raised at summary judgment and therefore remained unresolved. Pending before

the Court is SEC’s motion for judgment awarding monetary and injunctive relief.

/ / / / /

promulgated under Section 10(b), are sometimes referred to as Rule 10b-5. They apply

to securities buyers and sellers. Aaron v. SEC, 446 U.S. 680, 687 (1980).

4 Title 15 U.S.C. § 77q(a) is sometimes referred to as Section 17(a) of the Securities

Act of 1933 (“Securities Act”). It applies only to securities sellers. Aaron, 446 U.S. at

687.

5 Title 15 U.S.C. § 80b-6 is sometimes referred to as Section 206 of the Investment

Advisers Act of 1940 (“Advisers Act”).

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II. DISCUSSION

After granting the SEC’s summary judgment motion on the issue of liability, the

Court can “weigh facts in determining the appropriate remedy[.]” SEC v. Barry, 146

F.4th 1242, 1265 (9th Cir. 2025) (“Barry”); see also SEC v. Murphy, 50 F.4th 832, 848

(9th Cir. 2020).

The SEC seeks a final judgment for disgorgement of unlawful gains of

$507,996.42, prejudgment interest in the sum of $112,340.03, civil penalties in the sum

of $507,996.42, and injunctive relief

(1) permanently enjoining Defendant from future violations of Section

10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the

Securities Act, and Sections 206(1) and 206(2) of the Advisers Act, by

committing or engaging in specified actions or activities relevant to such

violations; and

(2) permanently enjoining Defendant from participating, directly or

indirectly, in the purchase, offer, or sale of any security other than for his

own personal account.

Plaintiff does not oppose injunctive relief. (See ECF No. 37, “Opp’n.”) He

opposes monetary relief generally arguing that after having been caught, it is much more

difficult for him to find employment and housing, and that it will be impossible for him

to pay the judgment requested by the SEC.

A. Injunctive Relief

The Securities Act, 15 U.S.C. § 77t(b), the Exchange Act, 15 U.S.C. § 78u(d)(1),

and the Advisers Act, 15 U.S.C. §80b-9(d) provide that upon proper showing, a

permanent injunction shall be granted in an enforcement action brought by the SEC.

Defendant does not oppose the SEC’s request for injunctive relief.

A permanent injunction “does not follow from success on the merits as a matter of

course.” Winter v. Nat’l. Res. Def. Council, Inc., 555 U.S. 7, 32 (2008); see SEC v. Fehn,

/ / / / /

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97 F.3d 1276, 1295 (9th Cir. 1996) (“Fehn”).6 When, as here, Congress empowers courts

to grant injunctive relief, the traditional equitable standard established in Winter governs.

See Starbucks v. McKinney, 602 U.S. 339, 345-46 (2024). Accordingly, the SEC must

make a showing regarding (1) its success on the merits; (2) whether irreparable harm will

likely result in the absence of the injunction; (3) whether the balance of the equities tips

in the SEC’s favor, and (4) the public interest. See Winter, 555 U.S. at 20.7

Here, the SEC has succeeded on the merits of all its claims. (See MSJ Order.) The

likelihood of irreparable harm can be demonstrated by showing the likelihood of future

violations. See Fehn, 97 F.3d at 1295; SEC v. Murphy, 626 F.2d 633, 655 (9th Cir. 1980)

(”Murphy”). In this regard, the Court must “assess the totality of the circumstances

surrounding the defendant and his violations,” as well as consider factors such as

(1) the degree of scienter involved; (2) the isolated or recurrent nature of the

infraction; (3) the defendant's recognition of the wrongful nature of his

conduct; (4) the likelihood, because of defendant's professional occupation,

that future violations might occur; (5) and the sincerity of his assurances

against future violations.

Fehn, 97 F.3d at 1295-96 (Murphy factors). “[T]he existence of past violations may give

rise to an inference that there will be future violations.” Fehn, 97 F.3d at 1295.

On summary judgment, the SEC showed that Defendant deliberately allocated

profitable trades to himself rather than his clients, made false statements in his ADV

brochures about his trading practices, and misrepresented to his clients the reason for

moving to a different trading platform, i.e., he covered up the fact that the broker-

custodian TDA closed his account due to concerns about preferential allocation of day

6 Unless otherwise noted, internal quotation marks, ellipses, brackets, citations, and

footnotes are omitted from citations.

7 “The standard for a preliminary injunction is essentially the same as for a

permanent injunction with the exception that the plaintiff must show a likelihood of

success on the merits rather than actual success.” Winter, 555 U.S. at 32.

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trades to his own account. (See MSJ Order at 8-17; see also id. at 3.) Defendant took

some of these deliberate actions even after warnings and notice from third parties,

including California Department of Financial Protection and Innovation. (Id. at 17-18.)

Based on these undisputed facts, the SEC showed that Defendant possessed a high level

of scienter. (See id. at 16-18.) Furthermore, Defendant engaged in his fraudulent scheme

for a sustained period -- at least from May 1, 2021, until TDA closed his account on

March 25, 2022. (Id. at 8-9.) During this time, he cherry-picked numerous trades

amounting to more than $70 million in the aggregate. (Id. at 9; see also ECF No. 26-21,

Gullapalli Report at 6 (19,407 allocations).) Defendant’s misconduct was not isolated but

recurrent and ended only when TDA closed his account. (Id. at 8-9, 14-15.) Defendant

has shown no remorse for the preferential treatment of his account at the expense of his

clients. In his summary judgment briefing, he maintained he did not know he did

anything wrong (id. at 18), and to date has made no assurance against further violations.

The SEC’s undisputed evidence is sufficient to show likelihood of future violations and

irreparable harm. See Fehn, 97 F.3d at 1295.

Given the deliberate nature and sustained duration of Defendant’s fraudulent

activities, the SEC seeks to enjoin future violations as well as preclude Defendant from

participating in security offering or trading other than for his own account. The

Exchange Act provides for “any equitable relief that may be appropriate or necessary for

the benefit of investors.” 15 U.S.C. § 78u(d)(5). Based on the undisputed facts of this

case, a conduct-based injunction requested by the SEC is warranted.

Finally, the balance of equities favors the SEC, which is seeking to enforce the law

and protect investors from Defendant’s fraudulent trading practices. For the same reason,

the requested injunctive relief is in the public interest. Accordingly, the SEC’s request for

injunctive relief is granted.

B. Disgorgement

The SEC seeks disgorgement of $507,996.42 from Defendant. The Exchange Act

authorizes disgorgement in SEC civil enforcement actions. SEC v. Sripetch, 154 F.4th

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980, 984 & n.2 (9th Cir. 2025) (“Sripetch”); cert. granted 2026 WL 73091 (Jan. 9, 2026)

(citing 15 U.S.C. §§ 78u(d)(3)(A)(ii), (5) & (7)). The SEC may seek, and a district court

may order, “disgorgement under paragraph (7) of any unjust enrichment by the person

who received such unjust enrichment as a result of such violation.” 15 U.S.C.

§§ 78u(d)(3)(A)(ii).

“Disgorgement is designed to deprive a wrongdoer of unjust enrichment, and to

deter others from violating securities laws by making violations unprofitable.” SEC v.

Platforms Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (“Platforms

Wireless”). However, it must conform to common-law equity limitations, including that

it generally must be returned to the wronged investors and may not exceed defendant’s

net profits. See Sripetch, 154 F.4th at 983-84; see also Liu v. SEC, 591 U.S. 71, 87

(2020); see also id. passim at 79-81, 83-89. Relief must be crafted so that the effect is

restitutionary rather than punitive. Liu, 591 U.S. at 80, see also id. at 82.

“The amount of disgorgement should include all gains flowing from the illegal

activities.” Platforms Wireless, 617 F.3d at 1096. It “need be only a reasonable

approximation of profits causally connected to the violation.” Id. Although “[t]he SEC

bears the ultimate burden of persuasion” on the issue whether the amount is a reasonable

approximation, “[o]nce the SEC establishes a reasonable approximation[,] the burden

shifts to the defendant[] to demonstrate” that it is not. Id; see also SEC v. Yang, 824

Fed.Appx. 445 (9th Cir. Aug. 6, 2020).

The SEC relies on Dr. Gullapalli’s calculations. (ECF No. 36-4, Second Gullapalli

Decl. & Ex. A; see also MSJ Order at 17; Gullapalli Report; ECF Nos. 26-3, “Gullapalli

Decl.”) Dr. Gullapalli calculated profits earned between the time of trade and time of

allocation. If all trades had been allocated equally across all accounts, all accounts would

have suffered a loss of 0.1083%. (Second Gullapalli Decl. & Ex. A.) Based on

preferential allocations to his own account, however, Defendant received a gain of

1.4153% and his clients received a loss of 1.2669%. (Id.) This resulted in Defendant

receiving $507,996.42 at the expense of his clients. (Id.)

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Defendant does not dispute the SEC’s analysis or evidence establishing the

disgorgement amount. Instead, he argues that the disgorgement amount does not

represent his “realized gains” and does not show that his clients suffered any “realized

losses.” (See Opp’n. at 2.) Realized gains and/or losses are not the applicable standard.

What matters are Defendant’s net profits that are “causally connected” to the violation,

i.e., caused by the allocation decision. See Platforms Wireless, 617 F.3d at 1096.

Accordingly, the relevant gains or losses are measured as of the time of allocation rather

than later when the stock is sold, as such gains or losses are caused by subsequent

decisions, for example, how long to keep a stock before selling.

Because Defendant’s financial hardship is the result of the SEC’s discovery of his

wrongdoing (see Opp’n at 2), and because disgorgement generally must be returned to

the wronged investors, Liu, 591 U.S. at 87, the Court finds his opposition unpersuasive to

defeat the SEC’s request.

C. Prejudgment Interest

Next, the SEC seeks prejudgment interest on disgorgement amounting to

$112,340.03. The SEC calculated interest from the end of March 2022, when the

wrongdoing ceased, to March 12, 2025, the date of the summary judgment order, based

on the rate of interest used by the Internal Revenue Service for the underpayment of

federal income tax under 26 U.S.C. § 6621(a)(2). (ECF No. 36-2, Lim Decl. ¶ 3 & Ex.

A.) Defendant does not oppose either the principal amount, the rate, or the term over

which interest was calculated. Because Defendant’s financial hardship resulted from the

discovery of his wrongdoing, the Court finds it is unavailing to defeat the SEC’s request

for prejudgment interest.

D. Civil Penalties

Finally, the SEC requests civil penalties in the sum of $507,996.42. Civil penalties

“go beyond compensation [and] are intended to punish and label defendants

wrongdoers.” Gabelli v. SEC, 568 U.S. 442, 451-52 (2013). The Securities Act, the

Exchange Act, and the Advisers Act each provide for civil penalties as follows:

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(d) Money penalties in civil actions

(1) Authority of Commission

Whenever it shall appear to the Commission that any person has violated

any provision of this subchapter … the Commission may bring an action in a

United States district court to seek, and the court shall have jurisdiction to

impose, upon a proper showing, a civil penalty to be paid by the person who

committed such violation.

(2) Amount of penalty

(A) First tier

The amount of the penalty shall be determined by the court in light of the

facts and circumstances. For each violation, the amount of the penalty shall

not exceed the greater of (i) [$11,823]8 for a natural person or [$118,225] for

any other person, or (ii) the gross amount of pecuniary gain to such

defendant as a result of the violation.

(B) Second tier

Notwithstanding subparagraph (A), the amount of penalty for each such

violation shall not exceed the greater of (i) [$118,225] for a natural person or

[$591,127] for any other person, or (ii) the gross amount of pecuniary gain

to such defendant as a result of the violation, if the violation described in

paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless

disregard of a regulatory requirement.

Notwithstanding subparagraphs (A) and (B), the amount of penalty for each

such violation shall not exceed the greater of (i) [$236,451] for a natural

person or [$1,182,251] for any other person, or (ii) the gross amount of

pecuniary gain to such defendant as a result of the violation, if--

(I) the violation described in paragraph (1) involved fraud, deceit,

manipulation, or deliberate or reckless disregard of a regulatory requirement;

and

(II) such violation directly or indirectly resulted in substantial losses or

created a significant risk of substantial losses to other persons.

8 The statutory penalty amounts are adjusted for inflation. 17 C.F.R. § 201.1001(b);

https://www.sec.gov/enforce/civil-penalties-inflation-adjustments.htm.

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15 U.S.C. § 77t(d); see also id. §§ 78u(d)(3), 80b-9(e).

The amount set forth in each tier applies “for each violation.” “District courts have

discretion to determine what constitutes a ‘violation’ and have relied on various proxies,

such as the number of investors defrauded, number of fraudulent transactions, [or]

number of statutes violated[.]” Barry, 146 F.4th at 1266. No matter what proxy is used

here, Defendant committed numerous violations as his scheme violated multiple statutes

and included 19,407 allocations involving 87 client accounts over at least ten months.

(See MSJ Order; see also Gullapalli Report at 6-7.)

“Courts look to the five Murphy factors to guide the determination of a civil

penalty award in light of the facts and circumstances of the case.” Barry, 146 F.4th at

1266. The Court has considered the five Murphy factors in the context of injunctive

relief. (See supra Section II.A.) The application of the Murphy factors supports a finding

that Defendant’s violations involved fraud, deceit, and deliberate disregard of the

regulatory requirements. (See id; see also MSJ Order at 8-22.) His actions resulted in

financial losses to his clients. (See Second Gullapalli Decl. & Ex. A.)

The SEC requests $507,996.42 for civil penalties. As determined in relation to the

disgorgement amount, this represents Defendant’s profits as a result of his violations and

can be awarded as civil penalties. See 15 U.S.C. §§ 77t(d)(2)(A)(ii), (d)(2)(B)(ii) &

(d)(2)(C)(ii). This is not the maximum penalty that could be awarded in a case such as

this, involving numerous violations involving fraud, deceit, and deliberate disregard for

regulatory requirements resulting in financial losses to Defendant’s clients. Although the

SEC is seeking penalties under the third tier, which imposes the highest level of penalties,

more than the requested amount could be awarded even under the second tier, which

imposes $118,225 per violation. Defendant does not dispute that the third tier applies to

him but opposes the award based on his financial hardship and inability to pay. The

Court finds Defendant’s arguments unavailing given the egregiousness, frequency, and

persistence of violations as well as the fact that his present circumstances arise from the

/ / / / /

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discovery of his wrongdoing. Accordingly, the SEC’s request for $507,996.42 in civil

penalties is granted.

III. CONCLUSION

For the reasons stated above, the SEC’s motion for injunctive and monetary relief

is granted.

IT IS SO ORDERED.

Dated: February 2, 2026

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