SEC Charges Advisory Firm with Fraud for Improperly Retaining Fees in Connection with CDOs

The SEC announced that an investment advisory firm in Philadelphia agreed to pay over $21 million to settle charges that it fraudulently retained fees belonging to collateralized debt obligation ("CDO") clients. An SEC investigation found that the firm did not tell CDO clients that it retained payments known as "exchange fees" in connection with restructuring transactions. The order found that the firm's retention of the exchange fees was not permitted by the CDOs' governing documents, nor was it disclosed to the CDOs' investors and thus created undisclosed conflicts of interest.