Hybrid RIA SCF Investment Advisors agreed to pay more than $767,000 to settle claims related to 12b-1 fees that were charged to its clients in violation of federal antifraud and compliance rules, according to the Securities and Exchange Commission.
According to an SEC order filed Thursday, the Fresno, California firm selected mutual funds and cash sweep money market funds for clients that provided undisclosed revenue to its affiliated broker-dealer and were more expensive than other available options for the same funds.
Without admitting or denying the SEC’s findings, SCF will disgorge $544,446 of allegedly ill-gotten gains plus prejudgment interest of $22,746, and will also pay a $200,000 civil penalty, the regulator said. SCF also agreed to a cease-and-desist order, to be censured and to distribute the funds to harmed investors.
“The SEC’s share class initiative has been an ongoing matter for the entire industry over the past two years,” Grant Cox, SCF executive vice president and chief marketing officer, said Friday.
“SCF Advisors determined, much like most of the industry, to agree to fully disclose compensation areas that present potential conflicts of interest and continue to provide excellent service and value to its advisory clients,” he told ThinkAdvisor.
Some of the 12b-1 cases we are seeing now are “follow-ons to firms that have been under investigation for a year or two,” according to James Lundy, a former attorney at the SEC who’s now a partner at Faegre Drinker, based in Chicago.
The Share Class Selection Initiative “is over, but the SEC will continue to bring disclosure cases,” he told ThinkAdvisor Friday.
“The newer piece is the revenue sharing component. [They got SCF] for revenue sharing — it has to do with money market sweep funds,” Lundy explained.