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How CapWealth Fought 12b-1 Fee Charge: SEC Roundup

by Nick Morgan and Tom Zaccaro

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Welcome to SEC Roundup, a bimonthly video series by former Securities and Exchange Commission senior trial counsels Nick Morgan and Tom Zaccaro, founders of the nonprofit advocacy group Investor Choice Advocates Network.

Tim Pagliara, founder of CapWealth, and his attorneys Brad Bondi and Sara Ortiz explain what led to a remarkable decision to go to trial against the SEC, and the even more remarkable favorable jury verdict in CapWealth’s favor.

The SEC alleged in December 2020 that, from at least June 2015 until June 2018, CapWealth failed to adequately disclose conflicts of interest arising from the selection of mutual fund share classes that charged 12b-1 fees, instead of lower-cost share classes of the same funds that were also available to clients.

“We didn’t do anything wrong,” Pagliara says. “We did what the SEC asked us to do, with disclosures.”

The SEC, Pagliara tells Morgan and Zaccaro, “ran us right in to federal court and we ate their lunch. We discredited their experts.”

Listen in as Morgan and Zaccaro discuss with their guests why more IAs and BDs don’t fight the SEC and why more might be fighting now rather than settling — as Pagliara did — considering issues raised by current SEC initiatives like the WhatsApp probe.

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