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March 08, 2024 at 02:18 PM
What You Need to Know
- The lawsuit dates back to the SEC's 2019 crackdown on firms' widespread failures to disclose 12b-1 fees and other revenue-sharing arrangements.
- The SEC sued Commonwealth for failing to disclose that it was pushing share classes on which it collected revenue-sharing payments while cheaper share classes were avaiable.
- Commonwealth argues that failures on the SEC's part, and an alternate theory of damages, call for a smaller fine.
Commonwealth Financial Network still may have to pay as much as $111.5 million in damages tied to a nearly five-year-old Securities and Exchange Commission complaint it is fighting, although the investment advisor expects to book no more than a $24 million loss.
The SEC sued Commonwealth in 2019, alleging that from at least July 2014 through December 2018, the company breached its fiduciary duty to its advisory clients by failing to disclose conflicts of interest in a revenue-sharing program with its clearing firm.
Specifically, Commonwealth failed to tell clients that some mutual fund share classes generated millions of dollars in revenue-sharing payments for the firm, while other, cheaper share classes would have generated much less, or no, additional revenue, the SEC contended in the complaint in U.S. District Court in Massachusetts.
The complaint also alleged that Commonwealth failed to adopt and implement written policies and procedures reasonably designed to identify and to ensure the disclosure of material conflicts of interest arising from its revenue sharing agreement, Commonwealth noted in a report filed with the SEC last month.
Commonwealth does not comment on pending legal matters as a company policy, Peggy Ho, senior vice president, general counsel and chief risk officer, told ThinkAdvisor Friday in an email.
In April 2023, the district court issued a summary judgment finding that Commonwealth violated the Advisers Act of 1940 by failing to fully disclose conflicts of interest from revenue sharing it received with respect to certain mutual fund share classes, and by failing to implement written policies and procedures to disclose the revenue sharing compensation, the filing said.
