SEC Announces Settlement for Failure to Disclose Revenue Sharing Payments

On August 12, the SEC announced a settlement with dual investment adviser/broker-dealer registrant Cadaret, Grant & Co, Inc. (Cadaret), for failure to disclose conflicts of interests relating to revenue sharing payments it received for the sale of no-transaction fee (NTF) mutual fund share classes and for cash sweeps into certain money market funds, as well as for undisclosed markups on clearing broker transaction fees.  Cadaret was ordered to pay $6 million, which includes disgorgement, prejudgment interest, and a $1 million civil penalty.  The SEC found that Cadaret violated the antifraud and compliance provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

In addition to its failure to disclose material conflicts of interest associated with its receipt of revenue sharing payments, the settlement also stated that Cadaret breached its duty of care in connection with its role in recommending and selecting cash sweep options and NTF share classes for its clients. The SEC also found that Cadaret failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.

Proper disclosure of material conflicts of interest has long been a key focus area of the SEC, and fund directors, particularly those of funds with advisers that are dual registrants, may seek to obtain periodic updates about conflicts of interests from fund advisers, and inquire about what policies and procedures they may have implemented to mitigate them and disclose them appropriately.

Click here to read the Cadaret, Grant & Co., Inc., SEC Order.