On December 11, 2017, the SEC charged a dually registered investment adviser and broker-dealer, and its principal (collectively, the “Defendant”), with defrauding its clients and receiving $780,000 in ill-gotten gains. Over the course of several years, Defendant repeatedly purchased securities from underwriters at prices below the public offering price. Defendant then sold those same securities to its clients at a higher price without properly disclosing the mark-up. While engaging in these fraudulent transactions, Defendant made numerous false and misleading representations to clients regarding compensation. Furthermore, in its capacity as a broker-dealer, Defendant invested client assets in mutual fund shares with 12b-1 fees when cheaper shares of the same funds were available that did not include 12b-1 fees.
The SEC charges that Defendant’s engagement in these fraudulent activities were in direct violation of Sections 206(1), 206(2), 206(3) and 207 of the Investment Advisers Act. Accordingly, the SEC has requested injunctive relief, disgorgement of ill-gotten gains plus interest, and penalties.
WHAT DOES THIS MEAN FOR ME?
As part of a robust compliance program, advisers should review the management of client accounts to ensure that the firm is consistently seeking best execution. If a firm is unable to ensure best execution, they will likely be exposed during an SEC exam for putting the firm’s interests ahead of its clients’ interests. Please contact Fairview if you have any questions or concerns about your compliance program and how it relates to this case.