SEC Orders Investment Adviser to Pay Over $1 Million and Return Funds to Clients Harmed by Share Class Selection Practices
Aug. 20, 2020
File No. 3-19918
August 20, 2020 - The Securities and Exchange Commission today announced settled charges against California-based NPB Financial Group, LLC, a dually-registered investment adviser and broker-dealer, arising out of its mutual fund share class selection practices and receipt of 12b-1 fees. According to the SEC's Order, NPB 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 from January 2014 through March 2019, NPB purchased, recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees, including when lower-cost share classes of the same funds were available to the clients. According to the order, NPB and its associated persons received 12b-1 fees in connection with these investments, but NPB did not disclose this practice or the conflict of interest. The order also finds that NPB breached its duty to seek best execution by causing certain advisory clients to invest in fund shares that charged 12b-1 fees when share classes of the same funds were available to the clients that presented a more favorable value under the particular circumstances in place at the time of the transactions, and that NPB failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.
The SEC's order finds that NPB violated 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, NPB consented to a cease-and-desist order, a censure, disgorgement of $532,519, prejudgment interest of $92,668, and a civil penalty of $425,000. NPB has also agreed to distribute funds to harmed clients, comply with certain undertakings, and retain an independent compliance consultant.
The SEC's investigation was conducted by Adam Schneir and supervised by Gary Y. Leung, both of the Asset Management Unit in the Los Angeles Regional Office. John Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.