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SEC’s Self-Report Project Nabs $125M In Deals With 79 Firms

SEC’s Self-Report Project Nabs $125M In Deals With 79 Firms

SEC's Self-Report Project Nabs $125M In Deals With 79 Firms

By Rachel Graf of Law360.com

Seventy-nine investment advisers that self-reported steering clients to funds with relatively high fees have agreed to repay investors about $125 million, but will avoid additional fines under a U.S. Securities and Exchange Commission initiative announced last year.

Investment advisers including Deutsche Bank Securities Inc., Wells Fargo Clearing Services LLC and RBC Capital Markets LLC settled the SEC’s claims that they recommended mutual fund share classes with recurring fees over lower-cost options, the agency announced Monday. The SEC said these recommendations created a conflict of interest since the investment advisers benefited from the fees.

The advisers didn’t disclose these conflicts of interest to their clients, in violation of the Investment Advisers Act, according to the SEC. Because they self-reported the conduct, the firms won’t face additional penalties under the SEC’s Share Class Selection Disclosure Initiative, announced in February 2018.

“Regardless of the scope and duration of the investment advisory services, investment advisers are fiduciaries and, as such, their duties of care and loyalty require them to disclose their conflicts of interest, including financial incentives,” SEC Chairman Jay Clayton said in a statement. “I am pleased that so many investment advisers chose to participate in this initiative and, more importantly, that their clients will be reimbursed.”

Wells Fargo Clearing Services and its affiliate Wells Fargo Advisors Financial Network LLC will disgorge a combined $15 million plus $2.3 million in prejudgment interest. Deutsche Bank Securities will disgorge about $2.7 million and roughly $300,000 in prejudgment interest. RBC agreed to disgorge about $10.5 million plus $1.2 million in prejudgment interest.

Drinker Biddle & Reath LLP partner James G. Lundy said in January that the SEC seemed to be prioritizing the settlements following the most recent government shutdown.

In the past, the SEC has ordered investment advisers to pay disgorgement, prejudgment interest and civil penalties for allegedly violating the Investment Advisers Act. Even after a number of enforcement actions, the agency felt that firms still weren’t disclosing conflicts, and launched the Share Class Selection Disclosure Initiative, according to a press release.

Investment advisers that self-report disclosure failures, repay investors and correct past documents are eligible for leniency, according to the agency, which is still reviewing self-reports submitted before the June 2018 deadline.

Click on any of the following Orders to view a PDF version: Order 1  /  Order 2  / Order 3


The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.