SEC Charges HSBC Securities for Misleading Retail Clients On Adviser Compensation
March 16, 2020
File No. 3-19730
March 16, 2020 - The Securities and Exchange Commission today announced settled charges against HSBC Securities (USA) Inc. for making misrepresentations to its retail clients regarding how it compensated its dually registered investment adviser and broker representatives (IARs).
According to the SEC's order, HSBC Securities told its retail clients that IARs were compensated based solely on non-financial factors, and not based on the advisory fees paid to HSBC Securities. The SEC's order finds that, in fact, HSBC Securities considered several financial factors to determine its IARs' bonus compensation, including the amount of advisory fees that clients paid to HSBC Securities each quarter, which gave IARs a financial incentive to generate more advisory fees in their clients' accounts. In addition, the order finds that HSBC Securities failed to adopt and implement written policies and procedures reasonably designed to prevent violations related to its representations on IAR compensation.
The SEC's order finds that HSBC Securities violated the antifraud provisions of Sections 206(2) of the Investment Advisers Act of 1940 and the compliance policies and procedures requirements of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, HSBC Securities consented to the entry of the cease-and-desist order and a censure, and to pay a civil penalty of $725,000.
The SEC's investigation was conducted by Vincent T. Hull and John Farinacci of the Asset Management Unit.