Continuing its crackdown on 12b-1 fees, the Securities and Exchange Commission on Monday announced settled charges against 17 investment advisors for disclosure failures regarding their mutual fund share-class selection practices, bringing the total amount ordered to more than $135 million.
The firms include 16 advisors that self-reported as part of the Division of Enforcement’s Share Class Selection Disclosure Initiative and one advisor that did not self-report and was ordered to pay a $300,000 civil penalty.
On March 11, the commission instituted actions against 79 advisors that participated in the initiative, ordering the payment of over $125 million in disgorgement and prejudgment interest to investors.
The commission did not order a civil penalty as to any of those self-reporting firms.
The agency also charged Mid Atlantic Financial Management Inc., on Monday. The firm was eligible to self-report as part of the initiative but did not.
Mid Atlantic, whose affiliate received 12b-1 fees, failed to fully disclose the conflicts arising from its selection of more expensive mutual fund share classes for clients when lower-cost share classes for the same fund were available.
The SEC ordered Mid Atlantic to pay over $1 million in disgorgement and prejudgment interest and a $300,000 civil monetary penalty.
“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 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.”
The SEC’s orders find that the 16 self-reporting firms violated Section 206(2) of the Investment Advisers Act of 1940, and ordered that they are censured, that they cease and desist from future violations, that they pay disgorgement and prejudgment interest totaling nearly $10 million and that they comply with certain undertakings, including returning the money to investors.
The Financial Services Institute recently launched a campaign to halt the Share Class Selection Disclosure Initiative — which FSI along with former SEC Commissioner Paul Atkins argue is regulation by enforcement.
Firms charged that self-reported as part of the initiative:
- 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.