Close Close

Regulation and Compliance > Federal Regulation > SEC

SEC Loses Fraud Case Against Robare Group

Your article was successfully shared with the contacts you provided.

The Securities and Exchange Commission announced fraud charges against the Robare Group in September, claiming the Houston-based firm was recommending mutual funds to clients without disclosing a conflict of interest.

On Thursday, an administrative law judge, James Grimes, dismissed the charges against the firm, writing in his decision that the SEC’s Division of Enforcement “failed to carry its burden” in proving that the firm and its owners did indeed violate Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940.

The Robare Group has about $150 million in assets under management, according to the judge’ decision.

“From the very beginning we believed we had done nothing wrong,” Mark Robare, principal and founder of the firm, told ThinkAdvisor in an email. “We came under a lot of pressure to settle, and could have with more benign charges. At the end of the day, I still would have had to admit to items that I did not do and were not true.”

The original charges stem from an agreement between Fidelity and the Robare Group between September 2005 and September 2013, where the firm received approximately $400,000 from a revenue sharing agreement with Fidelity.

Under the agreement, the Robare Group would receive between two and 12 basis points from Fidelity when clients invested in “certain ‘eligible’ non-Fidelity non-transaction fee funds,” Grimes explained in his decision, noting that “eligible” was undefined in the agreement.

Robare testified that he confirmed with Fidelity that participation in the program would not increase costs for the firm’s clients, or force it to change the way it constructed portfolios. The agreement was approved by the firm’s broker-dealer, Triad, which received payments from the revenue sharing program, keeping 10% and forwarding the rest to the Robare Group.

The SEC charged that Robare Group did not adequately disclose this arrangement in its Form ADV Part 2. However, Grimes noted that although the form is an “appropriate place” to disclose conflicts of interest, firms may provide supplemental disclosure in other documents.

“The form itself says that a firm ‘may disclose this additional information to client in [the firm’s] brochure or by some other means,’” he wrote. The Robare Group provides clients with the Form ADV Part 2, in addition to the firm’s brochure, fee agreement, Fidelity customer agreement and other disclosure documents.

“In my opinion we were given no choice but to fight the case,” Robare said. “Fortunately it seems that Judge Grimes had seen the fact of the matter and made his decision in our favor. It was a long, grueling three-year ordeal. We give all of the credit to our legal team, our compliance consultants and our clients who have kept us in their prayers.”

— Check out SEC to RIAs: Beware the Ides of ‘May’ on ThinkAdvisor.