Website and ADV Must Disclose Enforcement Order Charging Conflict of Interest
An investment adviser/broker agreed to pay nearly $500,000 in fines and penalties and provide significant ADV and web disclosure for alleged failures to disclose conflicts of interest. The SEC alleged that the adviser/broker failed to inform clients that he would receive additional commissions if they followed his investment advice to switch classes of a recommended managed futures fund. The respondent was entitled to a commission of 4% per year subject to a 10% cap. The exchange was treated as a new investment for purposes of calculating the commissions. The SEC claimed that the respondent had a disclosure obligation even though the commissions were disclosed in the fund’s prospectus and subscription agreement. The SEC also rejected the respondent’s argument that a bona fide investment rationale existed for the recommended exchange. In addition to the financial penalties, the respondent agreed to post an excerpt of the enforcement order in his ADV and post the entire order on his website.
OUR TAKE: Both the SEC and FINRA want retail advisers and brokers to provide point-of-sale disclosures whether or not relevant information is included in product prospectuses and related documentation. Requiring a respondent to include the enforcement order summary in his ADV and then post the order on his website is a somewhat novel penalty.
http://www.sec.gov/litigation/admin/2010/34-63006.pdf
OUR TAKE: Both the SEC and FINRA want retail advisers and brokers to provide point-of-sale disclosures whether or not relevant information is included in product prospectuses and related documentation. Requiring a respondent to include the enforcement order summary in his ADV and then post the order on his website is a somewhat novel penalty.
http://www.sec.gov/litigation/admin/2010/34-63006.pdf
Posted by Todd Cipperman at 9/30/2010 5:36 AM 
Categories: Distribution and Broker-Dealers
Tags: confict of interest point-of-sale commissions exchange
Categories: Distribution and Broker-Dealers
Tags: confict of interest point-of-sale commissions exchange
Comments