Dual Registrant Settles Best Execution and Mutual Fund Share Class Selection Violations

A dually-registered investment adviser and broker-dealer settled SEC charges for failing to disclose conflicts of interest in connection with sources of third-party compensation received through revenue sharing cash sweep payments.

According to the SEC Order, from February 2016 through April 2018 the firm breached its fiduciary duty related to conflicts of interest. The SEC found that the firm breached its duty on best execution by causing clients to invest in share classes of mutual funds while there were more favorable share classes of these funds available. The SEC found that the firm violated its duty of care by failing to analyze whether the investments were in the best interests of the clients. The SEC also found that the firm committed compliance violations by failing to implement policies to supervise, report and prevent violations of the Advisers Act.

As a result, the SEC determined that the firm willfully violated Advisers Act Sections 206(2) and 206(4) ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices") thereunder.

To settle the charges, the firm agreed to (i) cease and desist from future violations of the charged provisions, (ii) be censured by the SEC and (iii) pay disgorgement, prejudgment interest and a civil penalty totaling $803,173.69.

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