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March 21, 2017 at 05:30 AM
In early March, the SEC announced that it had settled a case against a small Minnesota investment advisor, Voya Financial. Unremarkably, the case involved allegations similar to many other cases the SEC has brought against advisors in recent years: failure to disclose to investors the fact that the firm was receiving fees from a third party.
The SEC’s allegation that such fees created a conflict of interest for the advisor was no different than many other cases the SEC pursued during President Obama’s administration under SEC Chairwoman Mary Jo White.
However, one aspect of the case—the penalty assessed–may signal the sort of shift many expect from a Trump administration SEC.
—See Voya to Pay $3.1M for Not Disclosing Payments Tied to Fund Sales—
The SEC currently consists of only two out of five Commissioners, presided over by Acting Chair Michael Piwowar. President Trump’s nominee to head the agency, Jay Clayton, has his confirmation hearing on March 23.
For context, in the Voya case, the SEC alleged that the amount of undisclosed fees was just over $2.6 million, and the fine imposed was $300,000. So the fine was roughly 11% of the undisclosed fees the advisor received. That penalty contrasts with what the SEC imposed just over a year ago under Chair White in a factually similar case.
In that case, against Ohio-based Everhart Financial, the SEC imposed a fine against the advisor that was roughly 40% of the disgorgement amount. Does that mean that the SEC is now seeking penalties that are a quarter as large as the penalties it was seeking last year under the prior administration? It’s not that simple because each case has different facts, and the amount of the undisclosed fees does not always determine the amount of the penalty assessed.
But Acting Chair Piwowar’s comments and decisions on the issue of penalties suggest that we may in fact be witnessing a change away from higher and higher penalties against advisors and others.
Piwowar signaled his views on the penalty issue last November when the Commission, then consisting of Piwowar, Commissioner Kara Stein, and White, heard an appeal in another undisclosed fee case against an advisor called The Robare Group.
