SEC Settles Share Class Suit for $15 Million

The Securities and Exchange Commission has struck a deal with three investment advisers charged with breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process.

According to the SEC’s orders, PNC Investments LLC, Securities America Advisors Inc. and Geneos Wealth Management Inc. failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available. The SEC also charged Geneos for failing to identify its revised mutual fund selection disclosures as a “material change” in its 2017 disclosure brochure.

Collectively, the firms will pay almost $15 million, with more than $12 million going to harmed clients.

The SEC’s orders also found that PNCI and Geneos failed to disclose the conflict of interest associated with compensation they received from third parties for investing clients in particular mutual funds, and that PNCI improperly charged advisory fees to client accounts for periods when there was no assigned investment advisory representative.

The SEC’s orders find that PNCI, SAA and Geneos each violated provisions of the Investment Advisers Act of 1940, including an antifraud provision. Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure. Under the terms of he orders:

  • PNCI must pay $6,407,770 in disgorgement and prejudgment interest along with a $900,000 penalty.
  • SAA must pay $5,053,448 in disgorgement and prejudgment interest along with a $775,000 penalty.
  • Geneos must pay $1,558,121 in disgorgement and prejudgment interest along with a $250,000 penalty.

The SEC’s Share Class Selection Disclosure Initiative, announced earlier this year, gives eligible advisers until June 12, 2018, to self-report similar misconduct and take advantage of the Enforcement Division’s willingness to recommend more favorable settlement terms, including no civil penalties against the adviser.

A month ago the SEC announced a settlement under the same initiative with Ameriprise Financial Services Inc. claiming that the firm disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes. The SEC said that Ameriprise recommended and sold these customers more expensive mutual fund share classes when less expensive share classes were available, and failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments.

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