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Regulation and Compliance > Federal Regulation

Massachusetts BD to Pay $450K Over 12b-1 Fees

By Jeff Berman

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What You Need to Know

  • Massachusetts BD Bolton Securities is the latest firm to get into hot water with the SEC over mutual fund 12b-1 fees.
  • Sanctions against the firm include a $225,000 civil penalty.
  • The securities violations occurred from August 2014 through at least March 2018, the SEC says.

Bolton, Massachusetts-based broker-dealer Bolton Securities has agreed to pay about $450,000 in disgorgement, interest and a civil penalty to settle allegations that it failed to disclose material conflicts of interest related to mutual fund 12b-1 fees and principal trading compensation generated from client investments, according to the Securities and Exchange Commission.

On Feb. 25, U.S. District Court for the District of Massachusetts entered a final consent judgment against Bolton Securities (Bolton Global Asset Management) in connection with the SEC’s allegations. The SEC had filed a complaint against the firm on Nov. 4, 2019, charging it with failing to disclose the material conflicts of interest.

Without admitting or denying the allegations of the SEC’s complaint, Bolton Securities consented to the entry of the final judgment enjoining it from violating Sections 206(2), 206(3), and 206(4) of the Investment Advisers Act and Rule 206(4)-7.

The company was also ordered to pay disgorgement of $190,000, prejudgment interest of $34,994 and a civil penalty of $225,000, according to the final judgment. The judgment provides that those monetary remedies will be distributed to harmed investors from a fair fund.

Bolton Securities, which declined to comment Monday, is just one of many firms that the SEC has targeted over 12b-1 fees. Other companies that have been targeted by the SEC in recent months included Commonwealth Financial Network and Merrill Lynch.

According to the SEC’s complaint, from August 2014 through at least March 2018, Bolton Securities invested advisory clients in mutual fund share classes that charged 12b-1 fees, and which had an available share class without 12b-1 fees. Those 12b-1 fees were paid to an affiliated BD under common ownership and control with Bolton Securities, which in turn paid some of the fees to Bolton Securities’ investment adviser representatives, the SEC alleged.

Bolton Securities, however, did not disclose to clients that it purchased or held share classes for its clients that generated 12b-1 fees for its affiliate when different share classes of the same mutual fund were available that did not carry those fees, the SEC alleged.

The SEC also alleged that from November 2014 through at least March 2019, Bolton Securities used the principal trading account of the BD under common ownership and control to engage in self-dealing transactions with its advisory clients that generated principal trading compensation for the BD, without providing disclosure sufficient for clients to provide informed consent to the conflicted transactions, and without obtaining required client consent.

Jeff Berman

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