SEC Orders 17 Firms to Pay $11 Million in Crackdown on 12b-1 Fee Disclosures

September 30, 2019

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The Securities and Exchange Commission on Monday ordered 17 firms to pay $11 million in disgorgement over charges they failed to disclose conflicts in their mutual fund share class selection.

The order includes $10 million that the Commission collected from sixteen firms ranging from Bill Few Associates to Wedbush Securities that self-reported their misconduct and disclosure failures to the SEC as part of the regulator’s share class selection disclosure initiative.

The Commission also hit registered investment adviser Mid Atlantic Financial Management Inc., which did not self-report, with a $300,000 civil monetary penalty in addition to the order to return over $1 million of allegedly ill-gotten gains and accrued interest.

“Today’s actions reaffirm the benefits to advisers and their clients for self-reporting as part of the Initiative,” said C. Dabney O’Riordan, co-chief of the asset management unit in a prepared statement. “They also demonstrate the Commission’s commitment to holding advisers accountable for selecting more expensive investments that eat away at their clients’ investment returns without proper disclosure.”

All 17 firms settled the charges without admitting or denying the findings. The SEC in each case said that the firm and its brokers had failed to disclose that it had an incentive to recommend funds that paid them 12b-1 distribution fees when less expensive share classes were available.

In March the SEC said it had collected $125 million in disgorgement from 79 firms as part of the program but was continuing to evaluate self-reports that it had received from firms prior to the June 2018 deadline.

A spokeswoman for the SEC did not immediately return comment on whether it expects to bring any more cases related to self-reporting beyond the 16 announced Monday.

The Commission has been separately pursuing individual cases and in August accused Cetera Advisors of defrauding advisory account customers by selling them overpriced fund shares that generated almost $11 million in undisclosed 12b-1 and revenue-sharing fees from funds and a clearing firm over four years.

In August, the SEC also sued independent broker-dealer Commonwealth Financial Network for failing to disclose to customers conflicts involving payments from a Fidelity Investments unit for steering customers to certain mutual funds. Commonwealth has denied the allegations.

The 16 firms who participated in the self-reporting initiative include:

  • Bill Few Associates Inc.
  • Cargile Investment Management Inc.
  • Comprehensive Capital Management Inc.
  • Equity Services Inc.
  • Essex Financial Services Inc.
  • Folger Nolan Fleming Douglas Capital Management Inc.
  • Henley & Company Wealth Management LLC
  • Hilltop Securities Inc.
  • Hilltop Securities Independent Network Inc.
  • IC Advisory Services Inc.
  • Independent Financial Group LLC
  • Investment Partners Ltd.
  • IPG Investment Advisors LLC
  • Michigan Advisors Inc.
  • Saxony Capital Management LLC
  • Wedbush Securities Inc.

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