SEC Charges California-Based Investment Adviser for Failing to Disclose and Address Conflicts of Interest
May 20, 2024
ADMINISTRATIVE PROCEEDING
File No. 3-21943
May 20, 2024 - The Securities and Exchange Commission today announced settled charges against Raymond Lawrence Lent (dba The Putney Financial Group, Registered Investment Advisors), a sole proprietorship of Raymond Lawrence Lent, for breaches of fiduciary duty in connection with its recommendation and selection of certain investments that compensated an affiliated broker-dealer without fully and fairly disclosing its conflicts of interest.
The SEC's order finds that Putney recommended to its advisory clients variable annuity investments sponsored by insurance companies that paid upfront sales commissions to Putney's affiliated broker and to Lent in his capacity as a registered representative of the affiliated broker, when those same insurance companies, in the majority of cases, also issued variable annuities with the same features that did not pay sales commissions and had lower ongoing fees. According to the order, Putney did not fully and fairly disclose its conflict in recommending the commission-paying variable annuities and breached its duty of care when it did not conduct an analysis to determine whether those variable annuities it recommended were in its clients' best interest.
The order also finds that Putney invested advisory clients in certain money market funds used as cash sweep vehicles for which Putney's affiliated broker received revenue sharing without fully and fairly disclosing Putney's conflict of interest concerning these payments. The order further funds that Putney breached its duty of care when it did not perform any analysis to determine whether lower-fee money market funds were available and in the best interest of its clients.
As set forth in the order, Putney also failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the federal securities laws in connection with its variable annuity recommendations and money market fund disclosure and selection practices.
The SEC's order finds that Putney 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. Without admitting or denying the SEC's findings, Putney will pay disgorgement of $707,129.58, prejudgment interest of $183,236.60, and a civil penalty of $175,000. Putney has also agreed to a cease-and-desist order, censure, and undertakings.
The SEC's investigation was conducted by Ariana Torchin and supervised by Jeremy Pendrey, Corey Schuster, and Andrew Dean of the Asset Management Unit. John D. Farinacci, an Asset Management Unit industry specialist, assisted with the investigation. The examination that led to the investigation was conducted by Ricky Flanders, James Marchi, and Michael Linvill of the Division of Examinations of the San Francisco Regional Office.