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December 13, 2018 at 04:12 PM
The Securities and Exchange Commission’s enforcement division has launched new investigations into advisory firms that did not self-report violations under the agency’s Share Class Disclosure Initiative — with a new focus on revenue sharing.
The law firm Eversheds Sutherland reports in a just-released legal alert that the SEC’s enforcement division sent request letters last week to firms that didn’t self-report share-class violations, “but perhaps should have.”
The deadline for advisors to tell the SEC that they intended to participate in the agency’s Share Class Selection Disclosure Initiative was June 12.
Under the SCSD Initiative, announced by the enforcement division on Feb. 12, the agency said it would recommend standardized, favorable settlement terms to investment advisors who self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the advisor, its affiliates, or its supervised persons for investing advisory clients in a share class paying 12b-1 fees when a lower-cost share class of the same mutual fund was available for the advisory clients.
At the time the initiative was announced, the SEC told registered investment advisors that the agency “would be using a ‘carrot and stick’ approach to encourage RIAs to self-report,” explained Eversheds attorneys Brian Rubin and Cliff Kirsch, in their legal alert sent Wednesday.
The letters sent to firms last week “largely mirrored the 12b-1 disclosure issues set forth in the Initiative, but expanded the SEC’s initial review,” the attorneys state, in two key areas:
