SEC Orders Former Investment Adviser to Return Over $900,000 to Clients Harmed by Share Class Selection Disclosure Violations
Aug. 24, 2021
File No. 3-20469
August 24, 2021 - The Securities and Exchange Commission today announced that formerly registered investment adviser Northwest Advisors, Inc. has agreed to pay approximately $1.15 million to settle charges that it invested clients in more expensive mutual fund share classes, which provided the firm with financial benefits, without disclosing this conflict to clients. The settlement includes a distribution to harmed investors.
The SEC's order finds that Pennsylvania-based Northwest Advisors purchased, recommended or held for advisory clients mutual fund share classes that charged 12b-1 fees when lower-cost share classes of the same funds were available to the clients. According to the order, Northwest did not have to pay transaction fees for trades placed in clients' accounts in share classes that charged 12b-1 fees, but did have to pay transaction fees in connection with lower-cost share classes of the same funds. This practice created a conflict of interest that the firm did not adequately disclose to clients. In addition, the order finds that Northwest Advisors breached its duty to seek best execution for its clients by investing them in mutual fund share classes with 12b-1 fees rather than available lower-cost share classes of the same funds. According to the SEC's order, Northwest Advisors also failed to adopt and implement written policies and procedures designed to prevent these violations.
The SEC's order finds that Northwest Advisors 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 SEC's findings, Northwest Advisors will pay disgorgement of $779,416, prejudgment interest of $123,084, and a civil penalty of $245,000. Northwest Advisors has agreed to distribute $902,500 to harmed investors. Northwest Advisors also consented to a censure and the entry of a cease-and-desist order from committing or causing further violations of these provisions of the federal securities laws.
The SEC's investigation was conducted by Brian P. Thomas and Polly A. Hayes of the Philadelphia Regional Office, and supervised by Assunta Vivolo, Scott A. Thompson, and Kelly L. Gibson. The examination that led to the investigation was conducted by Ly T. Nguyen and James D. Elnitski of the Philadelphia Regional Office, under the supervision of Frank A. Thomas.