An investment adviser settled SEC charges relating to alleged misrepresentations on fees and failures to disclose conflicts of interest.
According to the SEC Order, from 2017 through March 2021, the firm misrepresented fee-related information and failed to disclose conflicts of interest in its Form ADV, Part 2A filing related to commissions paid to an affiliated broker-dealer. The SEC stated that the firm inaccurately disclosed that purchases of certain products from its affiliated broker would result in an offset of the firm's advisory fees by the amount of the affiliated broker's commissions, or that its affiliate would not receive commissions.
In addition, the SEC asserted that the firm's advisory agreements contained an impermissible "hedge clause," where the firm purported to limit its liability against client legal claims. The SEC stated that the hedge clause may mislead retail clients into not exercising their legal rights.
The SEC charged the firm with violations of IAA Section 206 ("Prohibited transactions by investment advisers"), Rule 206(4)-7 ("Compliance procedures and practices"), Section 204 ("Reports by investment advisers"), and Rule 204-2 ("Books and records to be maintained by investment advisers").
To settle the charges, the firm agreed to (i) cease and desist from future violations, (ii) a censure, (iii) hire an independent compliance consultant, (iv) pay disgorgement and prejudgment interest totaling $75,654.04, and (v) pay a civil monetary penalty of $300,000.
Available only to Cabinet Premium subscribers.
Combining regulatory and enforcement news, analysis, and practical work tools on an easy-to-use digital platform.