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SEC Settles Revenue Sharing and Conflicts of Interest Case

The SEC recently settled an administrative proceeding against two investment advisory firms and their owner regarding the failure to disclose a revenue-sharing agreement and conflicts of interest.  Portland-based Focus Point Solutions (“Focus Point”) and H Group, together with owner Christopher Hicks, agreed to pay a combined $1.1 million to settle the case.  Most notably, the SEC alleges that Focus Point did not disclose to customers that it was receiving revenue-sharing payments from a brokerage firm for recommending certain mutual funds to clients. 

In addition, the SEC charged that Hicks and the advisers failed to disclose conflicts of interest when Focus Point was seeking to become the subadviser to a fund.  First, Focus Point allegedly misrepresented to the fund’s board of trustees that it would receive no payments other than fees paid under the subadvisory contract.  In actuality, Focus Point had a separate payment arrangement with the Fund’s primary adviser.  Second, H Group allegedly violated its own proxy voting policies when it voted its clients’ shares in favor of adding Focus Point as a subadviser to the fund. Because H Group and Focus Point were related companies, H Group had a conflict of interest and, according to its proxy voting procedures, should have had their clients decide how to vote the proxies.

The fund involved in this case, the Generations Multi-Strategy Fund, is a series of the Northern Lights Fund Trust.  Earlier this year, Northern Lights received a Wells notice from the SEC warning that the SEC staff may recommend proceedings against it, its trustees and its CCO in connection with the advisory agreement approval process. That investigation is still ongoing.