Three investment advisers settled separate charges with the SEC (see here, here and here) after self-reporting certain failures to disclose conflicts of interest that were the focus of the SEC Enforcement Division's ("Division") Share Class Selection Disclosure Initiative. These settlements are the final cases the SEC will bring under the initiative.
As previously covered, the Division launched the initiative to incentivize self-reporting of certain mutual fund share class selection issues and allow advisory clients to obtain repayment of overcharges.
According to the SEC, two of the investment advisers self-reported the violations under the initiative and the third investment adviser self-reported its violations "within months" of the initiative's deadline. The SEC found that the investment advisers violated fiduciary duty and disclosure requirements by:
purchasing, recommending and/or holding mutual fund share classes for advisory clients that charged certain fees pursuant to Investment Company Act Rule 12b-1 (a/k/a "12b-1 fees"), rather than offering lower-cost share classes; and
failing to disclose Form ADV conflicts of interest concerning (i) 12b-1 fees receipts from affiliated brokers and/or (ii) mutual fund share class options that pay such fees.
The SEC also found that the third investment adviser failed to adopt and implement sufficient policies and procedures to prevent violations of the Adviser Act related to its mutual fund share selection practices.
To settle the charges, each of the investment advisers agreed to (i) cease and desist from further violating SEC rules, (ii) accept a censure, and (iii) comply with the undertakings set forth in each Order. The two investment advisers who self-reported as part of the initiative agreed to pay disgorgement and pre-judgment interest in the amounts of $101,090.46 and $325,376 and respectively. The third investment adviser agreed to pay disgorgement and pre-judgment interest in the amount of $416,870.10 and a civil penalty of $10,000.
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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