The Securities and Exchange Commission charged Cetera Advisors Thursday with breaching its fiduciary duty and defrauding its retail advisory clients in connection with the sales of mutual funds, earning more than $10 million to which it was not entitled.
The SEC said that the firm failed to disclose conflicts of interest related to its receipt of undisclosed compensation.
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The complaint seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a penalty.
According to the SEC's complaint, from at least September 2012 through December 2016, Cetera sold clients mutual fund share classes that charged 12b-1 fees even when it knew the clients were eligible to invest in lower-cost shares of the same funds.
Those clients paid additional compensation to Cetera for as long as they held their investments, the SEC said in a release.
The SEC's complaint also alleges that Cetera participated in a program offered by its clearing firm whereby it agreed to share with Cetera revenues and service fees the firm received from certain mutual funds. As a result, Cetera had an incentive to favor those funds over other investments when advising clients.
The SEC's complaint also alleges that Cetera directed its clearing broker to mark-up certain fees charged to Cetera's advisory clients, which Cetera then received indirectly from these same clients.
According to the SEC's complaint, Cetera failed to adequately disclose to its advisory clients each of these practices and the conflicts of interest associated with them. As a result of these failures, the SEC alleges that Cetera generated over $10 million in undisclosed compensation.