In the Matter of Credit Suisse Securities (USA) LLC
Admin. Proc. File No. 3-17899
In the Matter of Sanford Michael Katz
Admin. Proc. File No. 3-17900
On April 4, 2017, the Commission instituted and simultaneously settled related administrative and cease-and-desist proceedings (the "Orders") against Credit Suisse Securities (USA) LLC ("Credit Suisse") and its former Managing Director and Relationship Manager in its San Francisco branch office, Sanford Michael Katz ("Katz") (collectively, the "Respondents"). In the Orders, the Commission found that, from January 1, 2009 and January 21, 2014, Katz purchased or held Class A mutual fund shares for advisory clients who were eligible to purchase or hold less expensive institutional share classes of the same mutual funds. A significant difference between Class A shares and institutional share classes is the existence of marketing and distribution fees imposed on Class A shareholders pursuant to Section 12(b) of the Investment Company Act and Rule 12b-1 thereunder ("12b-1 fees"), typically 25 basis points per year for Class A shares. The 12b-1 fees are paid out of the assets of the fund as a portion of its expense ratio. In this case, the 12b-1 fees were passed through to Credit Suisse, which in turn paid a portion of that amount to its investment adviser representatives, also referred to as Relationship Managers ("RMs"), including Katz. Thus, 12b-1 fees decreased the value of advisory clients' investments in mutual funds and increased the compensation paid to Credit Suisse and its RMs. During the Relevant Period, Katz's practice of putting advisory clients in Class A shares when those clients were eligible for less expensive institutional share classes resulted in Credit Suisse collecting approximately $2.5 million in 12b-1 fees, approximately $1.1 million of which was paid to Katz. This practice was inconsistent with Katz's fiduciary duty, his representations to clients, and his obligation to obtain best execution for his advisory clients. Credit Suisse's disclosures did not adequately inform its advisory clients of the conflict of interest presented by its RMs' share class selection practices or update or enhance its policies or procedures to address this issue.
The Commission ordered, and the Respondents have paid a total of $7,927,160.76 in disgorgement, prejudgment interest, and civil money penalties to the Commission. The Commission also ordered that the funds ordered be combined and created a Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, so the penalties, along with the disgorgement and prejudgment interest, collected can be distributed to those harmed by the Respondents' conduct. See the Commission's Orders: Release Nos. 34-80373 and IA-4679.
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