An investment adviser settled SEC charges for breaches of fiduciary duty arising from an affiliated broker's receipt of compensation on advisory client investments.
According to the SEC, the adviser invested clients in (i) mutual fund share classes that paid the affiliated broker fees pursuant to ICA Rule 12b-1 ("Distribution of shares by registered open-end management investment company"); (ii) mutual funds that generated no transaction fee (or "NTF") revenue for the affiliated broker, and (iii) cash sweep products that resulted in revenue sharing between the investment adviser and affiliated broker. The SEC stated that the adviser did not fully and fairly disclose conflicts of interest in connection with its affiliated broker's receipt of this compensation. Additionally, the SEC determined that the investment adviser violated its duty to seek best execution by causing certain advisory clients to invest in certain mutual fund share classes when share classes of the same funds presented a more favorable value to the client.
As a result of these actions, the SEC determined that the adviser violated Sections 206(2) and 206(4) ("Prohibited Transactions by Investment Advisers") of the Advisers Act and Rule 206(4)-7 ("Compliance Procedures and Practices") thereunder.
To settle the charges, the firm agreed to (i) a censure, (ii) cease and desist from future violations, (iii) pay disgorgement, prejudgment interest and a civil monetary fine totaling $16,873,153, and (iv) comply with certain undertakings.
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