SEC Charges Brokerage Firm for Ignoring Red Flags in Soft Dollar Scheme

The SEC announced a sanction against a brokerage firm that repeatedly ignored red flags which resulted in approving more than $400,000 in soft dollar expenses that an investment advisor did not properly disclose to clients. The SEC explains that "soft dollars are credits or rebates from a brokerage firm on commissions that clients pay for trades executed in an investment adviser's client accounts. If appropriately disclosed, an investment adviser may use the soft dollar credits to pay for such expenses as brokerage and research services that benefit clients." The SEC found that the brokerage firm approved soft dollar payments to an investment advisory firm despite "clear signs" that payments were improper.

See: SEC Order; SEC Press Release.
See generally: Guide to Broker-Dealer Regulation, Trading Chapter(discussion of soft dollars).