SEC reaches nearly $10 million settlement with 17 additional firms in share-class crackdown

Of the firms involved, 16 self-reported and avoided civil penalties; another must pay a $300,000 fine

Sep 30, 2019 @ 2:07 pm

By Mark Schoeff Jr.

Another 17 investment advisory firms have agreed to return nearly $10 million to investors in the latest round of settlements in the Securities and Exchange Commission's crackdown on inadequate disclosure of mutual fund fees, the agency announced Monday.

Of the firms that settled, 16 self-reported. They will pay disgorgement to investors but avoid civil penalties. They were part of the SEC's Share Class Selection Disclosure Initiative that encouraged firms to turn themselves in if they failed to tell clients that they recommended high-fee share classes when less expensive share classes were available in the same fund.

Monday's action follows the first round of share-class settlements that were announced in March, when 79 investment advisory firms agreed to pay $125 million in disgorgement.

In addition to the 16 self-reporting firms, the SEC also reached a settlement on Monday with Mid Atlantic Financial Management Inc., which did not participate in the share-class initiative. The SEC ordered Mid Atlantic to pay $1 million in disgorgement and also imposed a $300,000 civil monetary penalty.

"Today's actions reaffirm the benefits to advisers and their clients for self-reporting as part of the initiative," C. Dabney O'Riordan, co-chief of the SEC Enforcement Division's Asset Management Unit, said in a statement. "They also 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."

A lawyer representing Mid Atlantic was not immediately available for comment.

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The self-reporting firms were Bill Few Associates Inc., Cargile Investment Management Inc., Equity Services Inc., Essex Financial Services Inc., Folger Nolan Fleming Douglas Capital Management Inc., Henley & Company Wealth Management, Hilltop Securities Inc., Hilltop Securities Independent Network Inc., IC Advisory Services Inc., Independent Financial Group, Investment Partners Ltd., IPG Investment Advisors, Michigan Advisors Inc., Saxony Capital Management, and Wedbush Securities Inc.

SEC Director of the Office of Compliance Inspections and Examination Peter Driscoll said earlier this month at the annual conference of state regulators that the SEC is continuing to see share-class selection problems in exams.

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In August, the SEC charged Commonwealth Financial Network with failing to disclose revenue-sharing agreements.

Some in the financial industry have cried foul over the SEC's share-class crackdown, arguing that the SEC is engaging in "rulemaking by enforcement" because it did not inform firms about what it expected in disclosures before launching enforcement efforts.


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