American Portfolios to Pay $1.75M for Overbilling, False Compliance Reviews

American Portfolios' Form ADV Brochure "did not disclose that Affiliated Broker charged markups on various types of transaction and account service fees, resulting in additional costs to clients, and instead misleadingly indicated that Clearing Broker A 'determine[d] the amount' of the fees billed," the order states.

Pursuant to the 2020 fee schedule, the affiliated broker "retained the full amount of the fees billed and, in exchange, Affiliated Broker paid Clearing Broker A an annualized asset-based fee for those services."

The affiliated broker’s compensation for the trade execution and account services that it provided was the difference between the fees billed, including fee markups, and the annualized asset-based fee paid to the clearing broker.

American Portfolios' brochure was amended on March 6, 2023, "to disclose Affiliated Broker’s ability to charge and set the applicable fee markups for ... advisory clients with assets custodied with Clearing Broker A, and that such an arrangement presents a conflict of interest."

American Portfolios neither admitted nor denied the SEC's findings. The firm was acquired by Osaic — known at the time as Advisor Group — in November 2022.

"The conduct that is the subject of the Order concerns practices that occurred prior to the acquisition of the adviser by Osaic, Inc. and the Order does not reference Osaic, Inc.," an Osaic spokesperson said.

The case underscores two key enforcement trends, Iron Road Partners, a risk consultancy, said in a recent note. "The SEC’s strict approach to disclosure adequacy—especially in affiliated arrangements," the firm said, as well as the Commission's "readiness to charge individuals for personal misconduct."

Overbilling

The SEC order states that American Portfolios "overbilled certain clients by charging them advisory fees on alternative investments that were not supposed to be charged under their advisory agreements and also overbilled certain clients by failing to return pre-paid advisory fees on terminated accounts," the order states.

American Portfolios also provided backdated documents to SEC staff during a compliance exam. The SEC levied a separate $10,000 fine against American Portfolios' former chief compliance officer, and a $20,000 fine against the firm's president, Gary Bruce Gordon.

According to the order, American Portfolios "erroneously billed and collected advisory fees on alternative investment positions, although no fees were supposed to be assessed on those positions."

The firm's Client Alternative Investment Disclosure Form provided, in relevant part, "that the client acknowledges that alternative investment positions in their account are not liquid, are not priced on a regular basis, and will not be charged an advisory fee," the order states.

American Portfolios maintained a list of alternative investment positions held by clients that were excluded from the firm's advisory fee billing "but failed to confirm that all relevant alternative investments were included on the list, which resulted in client overbilling," the SEC said.

American Portfolios also collected prepaid quarterly advisory fees from certain clients but failed to develop processes to refund a pro rata portion of those prepaid fees when clients terminated their accounts.

"This failure was contrary to [the firm's] client agreements, which specifically provided that clients would receive a pro rata refund of any prepaid quarterly advisory fees based upon the number of days remaining in the quarter after Respondent received the client’s termination notice," the order states.

Backdated Compliance Reviews

American Portfolios Advisors Inc. also produced backdated documents "purportedly documenting APA’s annual review of its compliance policies and procedures" to Commission staff during the course of a compliance exam that began in May 2021.

In a separate action, the SEC ordered Colin Michael Moors of Sayville, New York, who was chief compliance officer from 2018 to 2023, to pay a $10,000 penalty for creating "three documents which were styled as 'Annual Compliance Calendars' and purported to memorialize contemporaneous annual compliance reviews for the years 2018, 2019, and 2020."

"These documents were laid out in a checklist-like format listing compliance items to be completed, the frequency with which they should be completed, and a blank field to denote when the item had been completed, all of which were filled in by Respondent as completed during the respective years," the SEC order states.

Moors "signed and backdated his signature on each of the three documents to 2018, 2019, and 2020," the order states and "presented them to APA’s President, who also signed and backdated the documents."

APA, through Moors, then provided the backdated documents to Commission staff. Moors "voluntarily admitted to Commission staff in testimony that he created, signed, and backdated the calendars," according to the order.

"Fabricating documents or parts of documents, especially during an exam, almost guarantees enforcement. Even issues that could be resolved through deficiency letters may escalate if misconduct suggests deception," Iron Road Partners said. "Never falsify records or backdate documents, and exercise extreme caution if considering withholding materials."

From 2009 to 2023, Moors was also a registered rep associated with American Portfolios Financial Services Inc.

Moors is currently the chief compliance officer of Main Street Financial Solutions and has no prior disciplinary history.