Investment Adviser Fined for Failure to Disclose Payments from Affiliates

An investment adviser settled charges with the SEC for failing to disclose conflicts of interest to clients involving payments received by an affiliated custodian.

In an Order, the SEC said that the adviser failed to disclose to clients its role in setting the fee that an affiliated custodian earned in connection with a cash sweep program operated by the custodian. Additionally, the SEC found that the adviser received custodial support payments from third-party custodians without disclosing the associated conflicts of interest to clients.

As a result, the SEC concluded that the adviser violated Advisers Act Section 206(2) and (4) ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices") thereunder. To settle the charges, the adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay disgorgement, prejudgment interest and a civil penalty amount totaling $18,326,709.57.