Investment Adviser Settles SEC Charges for Wrap Fee Account Compliance Failures

An investment adviser settled SEC charges for wrap fee account review and disclosure failures.

In an Order, the SEC found that an investment adviser (i) failed to review wrap fee accounts in which customers traded infrequently to assess whether the program remained in the client's best interest "as required under its internal policies and external disclosures"; and (ii) failed to adequately disclose to wrap fee clients that additional transaction fees could be incurred. (Under the wrap fee program, clients "paid an all-inclusive fee for asset management, trade execution, and other costs.") The SEC also found that the adviser failed to maintain policies and procedures reasonably designed to prevent wrap fee program compliance failures, and failed to conduct annual compliance reviews.

As a result, the SEC determined that the adviser violated Section 206(2) and Section 206(4) of the Advisers Act ("Prohibited transactions by investment advisers"), as well as Advisers Act Rule 206(4)-7 ("Compliance procedures and practices").

To settle the charges, the adviser agreed to (i) cease and desist from future violations, (ii) a censure and (iii) pay a civil monetary penalty totaling $899,513, which includes a $700,000 monetary penalty, a $166,239 disgorgement and $33,274 in prejudgment interest.