The Securities and Exchange Commission and Commonwealth Financial Network have reached a tentative settlement over an enforcement action tied to revenue sharing payments in which the firm successfully fought a $93 million penalty.
The SEC and Commonwealth asked the U.S. District Court for the District of Massachusetts on Jan. 30 to stay proceedings to allow them time "to attempt to conclude settlement negotiations."
District Court Judge Indira Talwani agreed to give the parties until March 31 to file a joint status report.
The long-running case stretches back seven years. 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 National Financial Services.
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.
The crux of the SEC's allegations, according to the ruling issued by Talwani, was that "Commonwealth's failures to disclose were egregious, including that Commonwealth had agreements with NFS to receive portions of the fees received by NFS' No Transaction Fee and Transaction Fee programs and that Commonwealth failed to make robust disclosures regarding the revenue it generated from the higher-cost shares."
In March 2024, the court ordered the firm to pay $93 million, including $65.6 million in disgorgement, $21.2 million in interest and a civil penalty of $6.5 million.
However, a federal appeals court reversed that ruling in April 2025 and remanded the case for further proceedings, holding that a jury should decide whether the firm's alleged disclosure omissions were "material," the Eversheds Sutherland attorneys representing Commonwealth said in a statement at the time.
"The court explained that there were material issues of fact as to the importance of price, Commonwealth's influence over funds, and the significance of the allegedly deficient disclosures themselves," the Eversheds attorneys said. Further, the appeals court "vacated the disgorgement award, citing 'concerning, fundamental legal errors' made by the district court regarding whether the SEC proved a causal relationship between Commonwealth's profits and alleged violations."
Commonwealth did not respond to a request for comment on Friday.
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