The SEC charged a dually-registered investment adviser and broker-dealer with defrauding advisory clients by investing their assets in high-cost share classes and failing to disclose conflicts of interest.
Before the U.S. District Court for the District of Colorado, SEC alleged that Cetera Advisors LLC ("Cetera") recommended to its clients mutual fund share classes that paid compensation to Cetera when it knew that otherwise identical share classes with lower fees were available. According to the SEC, these higher cost share classes created "millions of dollars" worth of additional revenue in the form of ICA Rule 12b-1 fees for Cetera. In addition, the SEC alleged that Cetera participated in a program whereby Cetera received a portion of the fees paid to its clearing broker with respect to certain mutual funds, leading Cetera to recommend those mutual funds to its clients over others. The SEC asserted that Cetera accumulated $10 million as a result of "breaching its fiduciary duty" and defrauding clients.
The SEC is seeking (i) a permanent injunction, (ii) disgorgement of any ill-gotten gains in addition to paying pre-judgment interest, and (iii) payment of a civil penalty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.