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William Blair, Calvert Settle with SEC on Payments Related to Fund Marketing, Distribution

The SEC announced a $4.5 million settlement with William Blair & Company over charges that, as a result of erroneous payments, fund assets were used to pay for distribution and marketing of fund shares outside of a Rule 12b-1 plan. William Blair did not admit or deny the SEC’s findings. The settlement was the second since the SEC launched its “Distribution in Guise” sweep in 2013. Calvert Investments in October 2016 disclosed that fund assets were improperly used to pay for distribution-related services. Calvert and its broker-dealer affiliate also reached a settlement with the SEC, agreeing to pay approximately $22 million, including a $1 million civil penalty.  The SEC charged that Calvert improperly used fund assets to pay nearly $18 million for distribution and marketing of fund shares as well for payments of expenses in excess of the funds’ expense caps, among other findings. At the Mutual Fund Directors Forum’s Policy Conference last month, Anthony Kelly, co-chief of the SEC’s Asset Management unit, hinted at enforcement actions related to firms’ distribution-related practices. According to the SEC’s order, William Blair, as a result of erroneous payments that totaled approximately $1.25 million, negligently used mutual fund assets to pay for distribution and marketing of fund shares outside of a Rule 12b-1 plan and sub-transfer agent services in excess of board-approved limits from 2010 until 2014. The SEC found that under two intermediary agreements that specifically provided for distribution and marketing services, William Blair misclassified the agreements as being for sub-TA services and caused the funds to pay for those services outside of a 12b-1 plan. Further, under agreements for the provision of sub-TA services, William Blair caused the funds to pay amounts in excess of the sub-TA cap set by the funds’ board. The SEC also faulted certain prospectus and SAI disclosures, and found that William Blair did not fully disclose to the board that it, and not a third-party service provider, would retain certain shareholder administration fees.