The SEC has ordered 17 advisory firms to pay millions in total disgorgement and prejudgment interest to mostly retail clients harmed in the sale of higher-priced mutual fund share classes when lower-priced share classes were available.
All firms settled with the SEC.
Sixteen of those firms self-reported and were ordered to pay harmed clients $10 million in total for their failure to disclose their mutual fund share class selection practices to their clients and were thus covered by the SEC’s Share Class Selection Disclosure Initiative.
One firm — Mid Atlantic Financial Management — didn’t self-report and was ordered to pay more than $1 million to harmed clients plus a $300,000 civil penalty in addition to payments to harmed investors.
Under its Share Class Selection Disclosure Initiative, the SEC agreed not to recommend financial penalties for advisors who self-reported failures to disclose receipt of 12b-1 fees — which are recurring fees deducted from the fund’s assets — in recommending mutual fund share classes when lower-priced share classes of the same mutual fund were available.
Instead, the SEC recommended standardized, favorable settlement terms to advisors who self-reported by June 12, 2018.
In March, the SEC settled mutual fund share class violation charges against 79 advisory firms that were ordered to pay more than $125 million to harmed investors.
All the firms that have settled mutual fund share class violation charges with the SEC so far this year have also been censured and ordered to cease and desist from future violations.
The SEC says Mid Atlantic, which was eligible to self-report as part of the initiative but did not, was ordered to pay more than $1 million in disgorgement and prejudgment interest.
The settlements “demonstrate the Commission’s commitment to holding advisers accountable for selecting more expensive investments that eat away at their clients’ investment returns without proper disclosure,” C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit, says in a statement.
The latest firms to have settled with the SEC are:
- Bill Few Associates Inc.
- Cargile Investment Management Inc.
- Comprehensive Capital Management Inc.
- Equity Services Inc.
- Essex Financial Services Inc.
- Folger Nolan Fleming Douglas Capital Management Inc.
- Henley & Company Wealth Management LLC
- Hilltop Securities Inc.
- Hilltop Securities Independent Network Inc.
- IC Advisory Services Inc.
- Independent Financial Group LLC
- Investment Partners Ltd.
- IPG Investment Advisors LLC
- Michigan Advisors Inc.
- Saxony Capital Management LLC
- Wedbush Securities Inc.