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Dozens of Investment Advisors are Being Pushed to Settle 12b-1 Violation Claims

February 1, 2019

Months after the end of its amnesty on self-reporting fee violations at investment advice firms, the SEC is coming down hard on anyone who hasn’t taken up its offer, most recently pushing more than 50 firms to settle federal claims that they sold higher-fee mutual funds to their clients than what was available, according to news reports.

The firms had until Friday to settle the civil-fraud charges related to 12b-1 mutual fund fees, paid by investors and shared with advisors selling the funds, people familiar with the matter tell the Wall Street Journal.

The settlements are expected to range from tens of thousands of dollars for smaller investment advisors to millions of dollars for larger firms, the people tell the paper. Any settlement would need the approval of the SEC’s four commissioners, but could be made public as soon as April, sources tell the Journal. The paper was unable to determine the names of the firms.

Last February, the SEC promised leniency to firms who self-reported fee violations, such as failing to disclose that there are cheaper versions of the same mutual fund available or to fully disclose conflicts of interest connected to 12b-1 fees.

Investment advisors had until June to do so. Since then, the regulator has been aggressively pursuing alleged violators, most recently ordering two advice firms and the CEO of one to pay $1.8 million over alleged infractions.

Since 2017, fee violations were behind about a dozen enforcement actions, including against SunTrust Investments Services and PNC Investments, which agreed to pay back more than $16 million without admitting or denying the SEC’s claims, the Journal writes.

The firms involved in the most recent sweep were ones which didn’t self-report during the SEC’s amnesty, two people with knowledge of the matter tell the paper.


The regulator picked up on potential violations by analyzing money passed between mutual funds and brokers, the people tell the Journal.

“These are cases where people take a relatively small amount of money from a lot of people,” Robert Plaze, a former SEC regulator now at Proskauer & Rose LLP, tells the paper. “[SEC Chairman Jay] Clayton has understood these are the types of fraudulent activities that are very meaningful for smaller investors who pay extra.”

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.