SEC Charges San Francisco-Based Robo-Adviser for Breaching Fiduciary Duties in Connection with Its Preference for Proprietary ETFs
Aug. 19, 2021
File No. 3-20466
August 19, 2021. The Securities and Exchange Commission today instituted settled charges against San Francisco-based robo-adviser SoFi Wealth, LLC ("SoFi Wealth") for breaching its fiduciary duties to clients in connection with its April 2019 investment of client assets into two new exchange-traded funds ("ETFs") sponsored by its parent company, Social Finance, Inc. ("SoFi").
According to the SEC's order, on April 12, 2019, SoFi Wealth transferred assets in approximately 20,000 SoFi Wealth client accounts from third-party ETFs into two new ETFs sponsored by SoFi. As described in the order, SoFi Wealth sold the third-party ETFs its clients had held and used the proceeds of those sales to purchase positions in the SoFi ETFs, which triggered tax consequences for many of SoFi Wealth's clients. The order finds that, prior to SoFi Wealth executing these transactions, SoFi Wealth had failed to disclose to clients conflicts of interest associated with the transactions. Specifically, the order finds that SoFi Wealth's disclosures did not explain that SoFi Wealth (1) preferred SoFi's proprietary ETFs over third-party ETFs as investment options for clients, and that SoFi's economic interest in these proprietary ETFs presented a conflict of interest for SoFi Wealth, (2) was investing client assets in these proprietary ETFs to help market the SoFi brand as having a broader array of services and products than previously offered, and (3) intended to use client assets to capitalize the new SoFi ETFs with significant investment on their second day of trading, making the SoFi ETFs more liquid and favorable to the market. The order also finds SoFi Wealth caused its clients to engage in these transactions without making tax assumptions or considering tax consequences.
The SEC's order finds that SoFi Wealth violated Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the SEC's findings, SoFi Wealth agreed to a cease-and-desist order, a censure, a penalty of $300,000, and to perform certain undertakings.
The SEC's investigation was conducted by Heather E. Marlow and supervised by Jeremy Pendrey, both of the Enforcement Division's Asset Management Unit.