SEC Orders Investment Adviser to Pay $2.5 Million to Clients Related to Mutual Fund Share Class Selection Violations
Sept. 19, 2019
File No. 3-19472
September 19, 2019 - The Securities and Exchange Commission today announced that registered investment adviser Sigma Planning Corp. has agreed to settle charges that it selected mutual fund investments for clients that provided the firm with financial benefits without disclosing its conflicts to clients. The settlement includes a distribution to harmed investors.
The SEC's order finds that Sigma had two undisclosed financial conflicts with respect to the selection of 12b-1 fee-paying mutual fund share classes. First, Sigma failed to fully disclose its conflicts relating to select mutual fund share classes for which Sigma was paid a portion of the 12b-1 fees when lower cost share classes for the same mutual fund were available to Sigma's clients. Second, Sigma failed to disclose to clients that by selecting these 12b-1 fee share classes, the firm also avoided paying its clearing broker an asset-based fee that it would have otherwise had to pay. In addition, Sigma failed to disclose the conflicts associated with its broker-dealer affiliates receiving revenue-sharing payments in connection with certain alternative investment products that Sigma purchased for its advisory clients. The order also finds that Sigma itself acted as an unregistered broker-dealer.
The SEC's order finds that Sigma violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, as well as the broker registration provisions of Section 15(a) of the Securities Exchange Act of 1934.
Without admitting or denying the SEC's findings, Sigma will pay disgorgement of $1,920,809, prejudgment interest of $225,909, and a civil penalty of $400,000. Sigma has agreed to distribute these funds to harmed investors. Sigma also consented to a censure and the entry of a cease-and-desist order from committing or causing further violations of these provisions of the federal securities laws.
The SEC's investigation was conducted by Marie K. N. DeBonis and John Farinacci, and the case was supervised by Corey A. Schuster of the Asset Management Unit.