Dual Registrant Settles Charges for Failing to Disclose Revenue Sharing Conflicts of Interest

A dually-registered broker-dealer and investment adviser settled SEC charges for failing to disclose (i) conflicts of interest arising from revenue sharing agreements in place with its clearing brokers and (ii) its disciplinary history.

According to the Order, the SEC found that the firm failed to disclose that it would receive financial benefits from using two unaffiliated clearing brokers, including (i) transaction fee discounts and incentive credits that were contingent upon meeting certain dollar amount thresholds in FDIC-insured bank deposit cash sweep programs, (ii) revenue sharing payments based on the amount of advisory clients' assets in the cash sweep programs and (iii) revenue sharing payments from margin loans provided to advisory clients.

In addition, FINRA said that the firm also failed to disclose the relevant disciplinary history of two of its registered investment adviser representatives, and failed to disclose its disciplinary history in its brochure, instead directing clients to an external FINRA website in order to access the information.

The SEC determined that the firm violated Advisers Act Section 206(2) and (4)("Prohibited transactions by investment advisers") and Advisers Act Rule 206(4)-7 ("Compliance procedures and practices"). To settle the charges, the firm agreed to (i) cease and desist, (ii) a censure, and (iii) a civil monetary penalty of $375,000, plus disgorgement of $1,436,182 and prejudgment interest of $88,274.

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