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.
On January 29, 2018, the Commission issued an order appointing Boston Financial Data Services, Inc. as the Fund Administrator of the Fair Fund, and set the administrator’s bond at $7,927,160.76. See the Commission’s Order: Release No. 34-82595.
On July 12, 2018, the Commission published a notice of the proposed plan of distribution and opportunity for comment and simultaneously published the proposed plan of distribution (“Proposed Plan”). The notice provides the public with 30 days to submit their comments on the Proposed Plan. See the Commission’s Notice: Release No. 34-83621 and the Proposed Plan.
No negative comments were received during the comment period. On August 30, 2018, the Commission issued an order approving a plan of distribution and simultaneously posted the approved plan of distribution (the “Plan”). See the Commission’s Order: Release No. 34-83999 and the Plan.
The Plan provides that the distribution of the Fair Fund shall be made to those investors harmed by the Respondents’ conduct described in the Orders in accordance with paragraph 8 of the Plan.
On February 1, 2019, the Commission issued an order approving the disbursement of $3,531,714.92 from the Fair Fund for distribution to eligible investors. See the Commission’s Order: Release No. 34-85027.
For more information, please contact the Fund Administrator: