SEC Takes Aim at Advisors

Advisory firms were ordered to return $135 million to investors for pushing higher-fee mutual funds.

The headquarters building of the U.S. Securities and Exchange Commission. (Zach Gibson/Bloomberg)

The headquarters building of the U.S. Securities and Exchange Commission.

(Zach Gibson/Bloomberg)

The Securities and Exchange Commission’s division of enforcement said in its annual report that protecting Main Street from Wall Street is a “top enforcement priority.”

In the fiscal year ended Sept. 2019, the SEC brought 862 enforcement actions, up from 821 a year earlier. Of these, 526 were standalone enforcement actions, a 7% increase from fiscal 2018. However, actions against investment advisors and investment companies surged 77% to 191 actions from a year earlier.

The SEC is aggressively targeting advisors who push higher-fee mutual funds on retail clients without adequate disclosure.

Due to the SEC’s Share Class Selection Disclosure Initiative, launched 17 months ago, the report states that 95 investment advisory firms that voluntarily self-reported to the SEC were ordered to return more than $135 million to mutual fund investors – the vast majority retail investors.

Of this total, the SEC ordered 79 investment advisors to return $125 million to affected investors in March.

Investment advisory and investment companies stole the spotlight, accounting for 36% of standalone cases (up from 22% last year), followed by securities offerings at 21%, and issuer reporting/accounting and auditing matters at 17%.

“As in fiscal year 2018, the largest percentage of cases brought by the commission related to asset management, securities offerings, and issuer reporting and accounting issues,” the report said.

Broker-dealers accounted for 7% of standalone cases in the past fiscal year, while insider trading (6%), market manipulation (6%), the Foreign Corrupt Practices Act (3%), and Public Finance (3%) rounded out the list.

According to the report, enforcement actions were brought in the past fiscal year against a multitude of institutions, including Wells Fargo, Raymond James Financial Services Advisors, and BMO Harris Financial Advisors.

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