Trust Company Fined Over 12b-1 Fees
The company failed to adequately disclose in marketing materials its receipt of 12b-1 fees, the SEC says.
The Securities and Exchange Commission has ordered National Trust and Fiduciary Services, based in Virginia, to pay nearly $350,000 for failures to disclose 12b-1 fees.
The SEC’s order also requires Glen Armand, NTFS founder and CEO, to pay a $75,000 civil penalty.
The order addresses unregistered broker-dealer activity by NTFS and related material misrepresentations that NTFS and Armand made to their trust customers.
NTFS was a trust company that offered, among other services and products, an online platform to create irrevocable trusts.
From at least January 2015 through December 2018, “to conceal its unregistered brokerage activities, NTFS made it appear that Eastern Point Securities, Inc., a nominee formerly registered broker-dealer wholly owned by NTFS, was accepting and executing the omnibus trading activity of NTFS’s trust assets,” according to the order.
In reality, “NTFS bypassed EPS, in part, by using NTFS’s own personnel and systems to place mutual fund orders directly with EPS’s clearing firm,” the SEC said.
As the nominal broker of record, EPS received approximately $953,643 of transaction-based compensation in the form of 12b-1 fees during the relevant period, the order states, “out of which it routed approximately $764,933 to NTFS after deducting its operational expenses and satisfying its net capital requirements.”
Robert Moreschi, the only employee and managing principal at EPS, “controlled the timing and payments made by EPS to NTFS and knew EPS did not undertake any trading activity on behalf of its only customer, NTFS,” the SEC order states.
Moreschi was ordered to pay the SEC a $40,000 civil penalty.
The two Republican SEC commissioners, Hester Peirce and Mark Uyeda, issued a joint statement, citing their concern that the public would incorrectly assume by the order that the Rule 12b-1 fee revenue received by NTFS was a substitute for payments of an annual trustee fee.
Instead, the two wrote, “the facts here are consistent with the facts underlying prior Commission enforcement actions for inadequate disclosure of Rule 12b-1 fees.”
The SEC order establishes that:
(1) NTFS failed to adequately disclose in its marketing materials its receipt of Rule 12b-1 fees, and (2) monthly statements available to trust beneficiaries stated only that NTFS “may” receive Rule 12b-1 fees when, in fact, NTFS in all instances did receive Rule 12b-1 fees with respect to the product at issue.
(Photo: Diego M. Radzinschi/ALM)