Mutual Funds

SEC Settles Charges with Barclays Capital for Overcharging Clients

May 18, 2017 | Elizabeth Dalziel

On May 10, 2017, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Administrative and Cease-and-Desist Proceedings (“Order”) against Barclays Capital Inc. (“Barclays Capital”). The Order alleges that Barclays Capital, in its capacity as a dually-registered investment adviser and broker-dealer, overcharged advisory clients in the course of its wealth and investment management business. In conjunction with the Order, Barclays Capital submitted an Offer of Settlement where it agreed to pay about $97 million, which includes disgorgement and a penalty.

According to the SEC’s Order, Barclays Capital was the adviser and fiduciary to its advisory clients for two wrap fee programs: the Select Advisors Program and the Accommodation Manager Program, both of which were launched in September 2010. Starting in September 2010 and ending around the close of 2014, Barclays Capital assured Select Advisors Program clients in both client agreements and in its brochure that “Barclays Capital performed initial due diligence and ongoing monitoring of third-party managers it recommended to manage its clients’ assets using specific investment strategies.” Likewise, beginning in May 2011 and ending in March 2013, Barclays Capital assured Accommodation Manager Program clients that it conducted limited due diligence and monitoring of Accommodation Manager Program strategies. Continue reading ›

SEC Settles Charges with Investment Adviser for Failure to Disclose Conflicts of Interest Stemming From Revenue Sharing Arrangement

March 27, 2017 | Elizabeth Dalziel

On March 8, 2017, the Securities and Exchange Commission (“SEC”) issued an Order Instituting Administrative and Cease-and-Desist Proceedings (“Order”) against Voya Financial Advisors, Inc. (“Voya”), an SEC-registered investment adviser. The Order, to which Voya consented, obligates Voya to pay disgorgement of $2,621,324, prejudgment interest of $174,629.78, and a civil money penalty of $300,000.

The SEC’s Order claims that Voya did not inform its clients that it was receiving compensation from a third-party broker-dealer and that these receipts created a conflict of interest. Section 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”) states that investment advisers are forbidden from participating in “any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.” Section 207 provides that investment advisers are not allowed to “make any untrue statement of a material fact in any registration application or report filed with the Commission, or to omit to state in any such application or report any material fact which is required to be stated therein.” Finally, Rule 206(4)-7 under the Adviser’s Act compels investment advisers to “[a]dopt and implement written policies and procedures, reasonably designed to prevent violation” of the Adviser’s Act and the rules thereunder. Continue reading ›

FINRA Charges Oppenheimer & Co. for Multiple Compliance Failures

December 2, 2016 | Elizabeth Dalziel

On November 17, 2016, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued a Letter of Acceptance, Waiver and Consent (“AWC”), in which Oppenheimer & Co., Inc. (“Oppenheimer”) agreed to settle numerous charges. Pursuant to the AWC, Oppenheimer will be fined $1.575 million. It will also be required to make remediation payments of $703,122 to seven arbitration claimants and $1,142,619 to customers who qualified for but did not receive applicable sales charge waivers pertaining to mutual funds.

Many of the violations related to FINRA Rule 4530. Rule 4530(f) requires FINRA members promptly to provide FINRA with copies of certain civil complaints and arbitration claims. Rule 4530(b) provides that if a FINRA member realizes that it or an associated person has violated any securities or investment-related laws that have widespread or potential widespread impact to the firm, the member must notify FINRA. The notification should take place within either 30 calendar days after the determination is made or 30 calendar days after it reasonably should have been made.

According to FINRA’s findings, Oppenheimer failed to file in excess of 350 of these required filings. Moreover, FINRA found that when Oppenheimer did make the required filings, the disclosures were, on average, more than four years late.

SEC Publishes Guidance on Avoiding Mischaracterization of 12b-1 Fees

February 3, 2016 | Patricia Klusmeyer

The Securities and Exchange Commission (“SEC”) recently published guidance on the characterization of mutual fund fees, specifically 12b-1 distribution fees and sub-accounting fees, as part of their ongoing Distribution-in-Guise Initiative. Pursuant to Rule 12b-1 under the Investment Company Act of 1940, payments made by mutual funds (“funds”), to financial intermediaries from fund assets for the distribution of fund shares must be paid pursuant to a Rule 12b-1 plan that has been approved and adopted by the fund’s shareholders and Board of Directors (“Board”). In recent years the SEC has noticed that there are various fees being paid to intermediaries, in addition to distribution fees, that are being characterized as non-distribution-related fees and are not being paid pursuant to a Rule 12b-1 plan. Those fees include sub-transfer agent fees, administrative sub-accounting fees, and other shareholder servicing fees (collectively “sub-accounting fees”).

While these sub-accounting fees may in some cases be valid non-distribution-related fees, if they directly or indirectly compensate at all for any distribution-related activities, they are improperly labeled. Because of the importance of this issue given that fund fees directly impact investor returns and inherently involve conflicts of interest, the SEC has published guidance to assist funds in ensuring that distribution-related fees are being properly labeled and disclosed in a Rule 12b-1 plan as required. This potential problem was brought to the SEC’s attention after a recent sweep examination of various market participants including mutual funds, investment advisers, transfer agents, and broker-dealers.