In connection with the Share Class Selection Disclosure Initiative ("SCSDI"), the SEC settled charges against 79 investment advisers, who will collectively return over $125 million to clients. The majority of the funds will go to retail investors.
The SEC Orders found that the investment advisers placed clients in higher-cost mutual fund share classes that charged ICA Rule 12b-1 fees ("12b-1 fees") when a lower-cost share class was available without adequately disclosing that the higher-cost class was being selected. According to the Orders, the 12b-1 fees were paid to the investment advisers, in their capacity as brokers, to their broker-dealer affiliates or to their personnel, which created a conflict of interest with their clients (i.e., the investment advisers benefiting from the clients' paying higher fees).
Additionally, as part of the settlement, the firms agreed to a censure and to disgorge the improperly disclosed fees. The SEC said that each adviser also agreed to review and correct all disclosure documents as they relate to mutual fund share class section and 12b-1 fees and to assess whether existing clients should be moved to a lower-cost share class. The SEC did not impose civil money penalties against the investment advisers, consistent with the terms of the SCSDI.
The SEC Division of Enforcement launched an initiative designed to incentivize the self-reporting of certain mutual fund share class selection issues and allow advisory clients to obtain repayment of overcharges.
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