SEC Charges Investment Adviser for Failing to Disclose Conflicts of Interest

ADMINISTRATIVE PROCEEDING
File No. 3-20361

June 7, 2021 - The Securities and Exchange Commission today announced charges against Verus Capital Partners, LLC (Verus), an Arizona-based investment adviser, for failing to disclose revenue its investment adviser representatives (IARs) received from a third-party broker-dealer and its affiliates and the resulting conflicts of interest. This matter reflects a continued focus by the SEC's Division of Examinations and the Division of Enforcement on undisclosed compensation arrangements between investment advisers and broker-dealers.

According to the Order, Verus failed to disclose that its IARs had received more than $1 million in revenue in the form of forgivable loans between 2010 and 2020 from a broker-dealer and its affiliates. The loans were forgivable over a period of five years or less, and the forgiveness was tied either to: (i) the satisfaction of annual revenue targets, which included both brokerage commission and advisory fees; or (ii) the maintenance of the relationship between the Verus IAR and the broker-dealer for a certain number of years. The SEC's investigation found that Verus did not disclose the conflicts of interest created by the forgivable loans to its clients.

The SEC's order finds that Verus violated Section 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the SEC's findings, Verus consented to the entry of the SEC's order censuring it, and requiring it to cease and desist from further violations, comply with an undertaking to retain an independent compliance consultant and pay a $45,000 penalty.

The SEC's investigation was conducted by Matthew Montgomery and William Rosenthal, and was supervised by Spencer Bendell. The SEC's examination that led to the investigation was conducted by Yasin Shah, Jon Self, and Ji Shin, and supervised by Andy Sohrn and Tamara Heller.