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On September 30, 2019, the SEC announced settlements with 16 investment advisers that self-reported violations of the Investment Advisers Act of 1940, as well as an additional settlement with one investment adviser that did not self-report, in connection with allegedly inadequate disclosures relating to the advisers' practices for selecting mutual fund share classes for advisory clients. The settlements were part of the SEC’s Share Class Selection Disclosure Initiative, which the SEC launched in February 2018 to address potentially widespread violations of the federal securities laws relating to the practice by investment advisers of selecting for advisory clients high-cost mutual fund share classes that charge 12b-1 fees when a lower-cost share class of the same fund is available. In March 2019, the SEC previously announced similar settlements with 79 investment advisers under the initiative that resulted in more than $125 million in disgorgement and interest being returned to investors.

In the September 30 settlements, each investment adviser, without admitting or denying the allegations, agreed to be censured, consented to a cease and desist order finding violations of applicable sections of the Advisers Act and agreed to disgorge allegedly improperly disclosed fees, with interest, and to distribute the funds to clients. In the aggregate, the September 30 settlements resulted in more than $10 million in disgorgement and interest being returned to investors. In addition, the settling investment adviser that did not self-report was ordered to pay a $300,000 civil penalty. Similar to the March 2019 settlements, each settling investment adviser has also undertaken to review and correct all relevant disclosures concerning mutual fund share class selection and 12b-1 fees, and to evaluate whether existing clients’ assets should be moved to an available lower-cost share class.

The SEC’s announcement and links to each investment adviser’s settlement order are available here.


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Mark A. Quade