SEC Settles Charges of Undisclosed Conflict in Advisory Decision

September 06, 2018

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The U.S. Securities and Exchange Commission (“SEC”) recently announced that it has settled charges with an investment adviser firm. The SEC alleged that the investment adviser failed to disclose a conflict of interest. The settlement ended in payment of $8.9 million to the SEC by the investment adviser.


The SEC charged that the investment adviser firm failed to disclose a conflict of interest to its clients when the firm’s governance committee allegedly planned to terminate an offering of investment products managed by a 3rd party. However, according to the SEC, the investment adviser firm’s executives decided to keep those investment products and continue to offer them to new investment advisory clients in light of the “broader business relationship” the investment adviser firm had with the 3rd party investment product manager. The SEC asserted that this conflict of interest was not then properly disclosed to the investment adviser firm’s clients. The SEC found that failing to properly disclose and mitigate the conflict of interest with respect to the investment adviser firm’s decision-making process for investments violated Section 206(2) of the Investment Advisers Act; 206(4) of the Investment Advisers Act and SEC Rule 206(4)-7.


Without admitting to or denying the findings of the SEC, the investment adviser firm consented to the SEC order. The investment adviser firm agreed to pay $4 million in disgorgement, $806,981 in prejudgment interest, more than $4 million in penalties, and to be censured and cease and desist from further violations.


The full administrative proceeding released by the SEC can be found here.


RIA Compliance Consultants has compiled an up to date “Conflict of Interest Checklist” to assist investment adviser firms in reviewing potential conflicts of interest their firm may have. This checklist is available to Bronze, Silver, Gold, and Platinum Package clients as part of their package or available a la carte here.

Posted by RCC
Labels: Conflict of Interest, SEC, Uncategorized