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Regulation and Compliance > Federal Regulation > SEC

SEC 12b-1 Fee Crackdown Continues With Another Enforcement Action

By Melanie Waddell

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What You Need to Know

  • The SEC cited breaches of fiduciary duty by ONIMCO in connection with its affiliated broker-dealer, ONESCO.
  • Certain mutual funds the firm invested in also generated no-transaction fee revenue for ONESCO.
  • The firm advised clients to buy or hold mutual fund share classes that charged 12b-1 fees when lower-fee shares were available, the SEC said.

The Securities and Exchange Commission has charged O.N. Investment Management Co. with advising clients to buy or hold mutual fund share classes that charged 12b-1 fees when lower-cost share classes of those same funds were available.

The SEC said its complaint arises out of breaches of fiduciary duty by ONIMCO, a registered investment advisor, in connection with its affiliated broker-dealer and parent company O.N. Equity Sales Co.’s (ONESCO) receipt of third-party compensation from client investments without fully and fairly disclosing associated conflicts of interest.

Since at least 2014, according to the SEC complaint, ONIMCO invested clients in:

  • Mutual fund share classes that paid 12b-1 fees.
  • Certain mutual funds that also generated no-transaction fee revenue for ONESCO.
  • Cash sweep products that likewise resulted in revenue sharing for ONESCO.

“In spite of these financial arrangements, ONIMCO provided no disclosure or inadequate disclosure of the conflicts of interest arising from ONESCO’s receipt of this compensation,” the SEC said.

In particular, ONIMCO, although eligible to do so, did not self-report ONESCO’s receipt of 12b-1 fees to the commission pursuant to the Division of Enforcement’s Share Class Selection Disclosure Initiative.

“At all relevant times, ONIMCO also failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its mutual fund share class selection practices, NTF revenue sharing, and cash sweep revenue sharing,” the SEC said.

In its Form ADV dated March 25, 2021, ONIMCO reported that it had approximately $2.16 billion in regulatory assets under management.

Melanie Waddell

@Think_MelanieW

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