SEC Announces Results of Share Class Selection Disclosure Initiative

November 04, 2019
| Journal of Investment Compliance, Vol. 20 No. 4

Earlier this year, the U.S. Securities and Exchange Commission (SEC) announced that it had settled charges against 79 investment advisers in connection with its Share Class Selection Disclosure Initiative (SCSD Initiative). More recently, on September 30, 2019, the SEC announced an additional round of settled charges pursuant to this initiative against 16 additional advisers, as well as charges against an adviser that had been eligible for self-reporting under the initiative but had not done so. The SCSD Initiative was an enforcement program offering standardized settlement terms for investment advisers that self-reported circumstances in which they did not adequately disclose certain conflicts of interest relating to the sale of more expensive mutual fund share classes when lower-cost share classes of the same fund were available. According to the SEC, the self-reporting advisers, some of whom were dually registered as broker-dealers, did not adequately disclose either their receipt of 12b-1 fees or “additional compensation received for investing clients in a fund’s 12b-1 fee-paying share class when a lower-cost share class was available for the same fund.” Per the terms of settlements under the SCSD Initiative, self-reporting advisers were found to have violated Section 206(2) and, for certain advisers, Section 207 of the Investment Advisers Act of 1940 and were required to pay disgorgement and prejudgment interest. By contrast, the non-self-reporting adviser was charged with best execution and policy and procedures violations on top of disclosure violations and also required to pay a $300,000 civil penalty in addition to disgorgement and prejudgment interest.

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