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SEC Urges Advisers to Self-Report Share Class Violations; Budget Request Up for 2019

The SEC’s Division of Enforcement recently announced a self-reporting initiative that aims to protect advisory clients from undisclosed conflicts of interest and return money to investors. Under the Share Class Selection Disclosure Initiative, the Division will recommend standardized, favorable settlement terms to investment advisers that self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for clients in a 12b-1 fee paying share class when a lower-cost share class of the same fund was available to the clients. The division said it may recommend settlements that will require the adviser to disgorge its gains and pay those amounts to harmed clients, but not impose a civil monetary penalty for eligible advisers. The division also warns that it expects to recommend stronger sanctions in any future actions against investment advisers that engaged in the misconduct but failed to take advantage of the initiative.

The SEC also announced a $1.658 billion budget request for fiscal year 2019, a 3.5 percent increase over the fiscal year 2018 budget request. The budget request includes a $45 million increase in funding for information technology enhancements to support the agency’s cybersecurity capabilities, risk and data analysis, enforcement and examinations, and automation of business processes.

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