SEC Orders Investment Adviser to Return Over $900,000 to Clients Harmed by Share Class Selection Practices
Feb. 13, 2020
File No. 3-19699
February 13, 2020 - The Securities and Exchange Commission today announced that dually-registered investment adviser and broker-dealer BPU Investment Management, Inc. has agreed to settle charges arising out of its mutual fund share class selection practices.
The SEC's order finds that Pennsylvania-based BPU failed to adequately disclose the conflicts arising from its selection of mutual fund share classes that charged 12b-1 fees, which BPU received, instead of lower-cost share classes of the same funds that were available to clients. In addition, the order finds that BPU breached its duty to seek best execution for its clients by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. According to the SEC's order, BPU also failed to adopt and implement written policies and procedures designed to prevent these violations. BPU was eligible to self-report to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative, but did not do so.
The SEC's order finds that BPU violated the antifraud 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 findings, BPU will pay disgorgement of $582,178, prejudgment interest of $109,929, and a civil penalty of $235,000. BPU has agreed to distribute $927,107 to harmed investors. BPU also agreed to comply with certain undertakings and to the entry of an order that it is censured and that it cease and desist from future violations.
The SEC's investigation was conducted by Oreste P. McClung and supervised by Brendan P. McGlynn, both of the Asset Management Unit in the Philadelphia Regional Office. John Farinacci, an industry expert in the Asset Management Unit assisted with the investigation. The examination that led to the investigation was conducted by Michael Makoul, Steven Morton, Kristy Moore, Daniel Faigus, Brian Carroll, and Steven Dittert of the Philadelphia Regional Office.