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Regulation and Compliance > Federal Regulation > SEC

SEC Fines ISC Advisors Over 12b-1 Fees

By Melanie Waddell

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What You Need to Know

  • ISCA cIlients were urged to buy and hold funds that paid its affiliated broker-dealer 12b-1 fees.
  • The firm also failed to disclose revenue sharing in a cash sweep.
  • The firm did not self-report to the SEC under its Share Class Selection Disclosure Initiative.

The Securities and Exchange Commission has fined ISC Advisors for recommending mutual fund share classes that paid ISCA’s affiliated broker-dealer 12b-1 fees when lower-cost shares were available and for receiving revenue sharing in cash sweep programs.

ISCA, the order states, “failed to provide full and fair disclosure of these payments and the resulting conflicts of interest.”

Since at least Jan. 1, 2014, ISCA recommended that its clients purchase and hold mutual fund share classes that paid its affiliated broker-dealer, Institutional Securities Corp., 12b-1 fees.

Also, since at least Jan. 1, 2014, ISCA’s affiliated broker received revenue sharing from its clearing broker for ISCA’s client assets in uninvested cash (whether held in money market mutual funds, a bank insured deposit program or otherwise), the order states.

ISCA, the order states, violated its duty to seek best execution for certain transactions “by selecting or recommending certain mutual fund share classes when share classes of the same funds were available to its clients that presented a more favorable value for these clients at the time of the transactions.”

Although eligible to do so, the firm did not self-report to the SEC pursuant to the Division of Enforcement’s Share Class Selection Disclosure Initiative.

ISCA told the commission that after the commencement of its investigation, the firm reimbursed approximately $331,000 in 12b-1 fees, plus interest, to clients, began rebating 12b-1 fees to client accounts, and converted client investments to the available share class most favorable to ISCA clients.

The SEC ordered the firm to pay disgorgement and prejudgment interest and a $180,000 civil monetary penalty, totaling $716,345.

Melanie Waddell

@Think_MelanieW

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