Close Close
ThinkAdvisor
SEC Building Image from photo taken by ALM

Regulation and Compliance > Federal Regulation > SEC

SEC Strikes Again on 12b-1 Fees, Fining Another RIA

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • Aventura Capital Management must pay more than $900,000 for 12b-1 fee and revenue sharing infractions.

Aventura Capital Management has become the latest firm charged by the Securities and Exchange Commission with revenue sharing and 12b-1 fee violations.

The SEC’s action cites breaches of fiduciary duty by Aventura Capital, a registered investment adviser, in connection with the receipt of fees by its affiliate Aventura Securities LLC, a registered broker-dealer, from Aventura Capital’s advisory clients’ investments.

Aventura is ordered to pay a total of $938,756: disgorgement of $623,324, prejudgment interest of $90,432 and a civil money penalty of $225,000.

Aventura Capital Management LLC is a limited liability company based in Fort Lauderdale, Florida. Aventura Capital’s March 31 Form ADV, Part 1 filing reports regulatory assets under management of $123 million.

According to the SEC complaint, at various times from December 2015 to June 2022, Aventura Securities received compensation including:

  • fees Aventura Securities received when Aventura Capital purchased, recommended, or held for Aventura Capital’s advisory clients mutual fund share classes that paid 12b-1 fees pursuant instead of available lower-cost share classes of the same funds;
  • fees Aventura Securities received from its clearing broker as a result of Aventura Capital’s advisory clients’ uninvested cash being swept into share classes of certain money market mutual funds instead of lower-cost share classes of the same money market funds; and
  • mark-ups and mark-downs that Aventura Securities received when Aventura Capital directed certain trades on behalf of clients without disclosing the capacity in which Aventura Capital was acting, without providing prior written disclosure to, and obtaining consent from clients, in advance of each transaction, and without disclosing the compensation that Aventura Securities received from such trading.

First, from December 2015 to June 2022, Aventura Capital did not adequately disclose in its Forms ADV or otherwise its practice to select mutual fund share classes that paid 12b-1 fees, or the resulting conflict of interest.

Aventura Capital, although eligible to do so, did not self-report this 12b-1 fee related conflict of interest to the Commission pursuant to the Division of Enforcement’s Share Class Selection Disclosure Initiative.

Aventura Securities received revenue sharing payments from its clearing broker based on the amount of Aventura Capital’s advisory client assets invested in certain share classes of money market funds used as cash sweep vehicles. Aventura Capital did not disclose this conflict of interest in its Forms ADV or otherwise, the complaint states.

From at least December 2015, Aventura Capital, by causing certain of its advisory clients to invest in higher-cost share classes of mutual funds that paid 12b-1 fees and money market funds that resulted in revenue sharing payments, breached its duty to seek best execution for those transactions, the SEC said.

The SEC complaint further states that at times since at least December 2015, Aventura Securities “received mark-ups and mark-downs when Aventura Capital engaged in securities transactions with its clients on a principal basis through its affiliated broker-dealer, without providing prior written disclosure to, or obtaining consent from, its clients in advance of each transaction.”

During each of the relevant periods, the SEC states, Aventura Capital 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 mutual fund and money market fund share class selection and principal transaction practices, or disclosure of these practices to advisory clients.

A request for comment from Aventura was not received by press time.


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.