SEC Settles Charges Against Registered Investment Advisor for Failing to Disclose Conflicts of Interest
Sept. 3, 2019
File No. 3-19411
September 3, 2019 - The Securities and Exchange Commission today announced the institution of settled cease-and-desist proceedings against Lefavi Wealth Management, Inc. ("LWM"), a Utah-based registered investment adviser. LWM agreed to settle charges that it failed to disclose conflicts of interest related to its receipt of additional compensation from its recommendation and sales of alternative investments to advisory clients.
According to the SEC's order, from June 2014 through December 2016, LWM invested advisory client assets in alternative investments-such as non-traded real estate investment trusts, business development companies, and private placements-that included a seven percent commission embedded in the alternative investments' share price. As stated in the order, during the relevant period, most of the alternative investments in which LWM invested client assets could have been purchased at a lower share price that did not include any commission or at a discounted commission for volume purchases. The SEC's order further finds that LWM did not tell its advisory clients that: (1) it could have invested their assets in the exact same alternative investments at a lower share price; (2) LWM, in virtually every instance, invested advisory client assets in alternative investments with a higher share price that generated higher compensation for LWM; and (3) LWM had an undisclosed conflict of interest stemming from its receipt of additional compensation for investing advisory client assets in alternative investments at a higher share price.
The SEC's order finds that LWM willfully violated the antifraud provisions and compliance rule of Sections 206(2) and 206(4) of the Investment Advisors Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, LWM agreed to a cease-and-desist order and censure, and agreed to pay approximately $1 million in disgorgement and prejudgment interest, and a $150,000 civil money penalty. LWM also agreed to certain undertakings and to make distributions to harmed advisory clients.
The SEC's investigation was conducted by Marc D. Ricchiute and Kimberly L. Frederick of the Denver Regional Office and supervised Jason J. Burt and Kurt L. Gottschall. The SEC examination that led to the investigation was conducted by Danielle Thomas, Tim Worthington, Heather Clark, and Kenny Bossert of the Denver Regional Office.