SEC Orders Investment Adviser to Pay Over $16 Million and Return Funds to Clients Harmed by Undisclosed Conflicts
Dec. 20, 2021
File No. 3-20685
December 20, 2021 - The Securities and Exchange Commission today announced settled charges against 1st Global Advisors, Inc., a registered investment adviser based in Texas, for breaches of fiduciary duty in connection with advisory client mutual fund and money market investments that generated compensation for its affiliated broker.
The SEC's order finds that 1st Global, now known as Avantax Advisory Services, Inc., failed to provide full and fair disclosure of its conflicts of interest associated with client investments in (1) mutual fund share classes that paid 1st Global's affiliated broker fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (12b-1 fees); (2) certain mutual funds that generated no-transaction fee revenue for 1st Global's affiliated broker; and (3) cash sweep products that likewise resulted in 1st Global's affiliated broker receiving revenue sharing. While under prior ownership, 1st Global did not self-report its receipt of 12b-1 fees to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative although eligible to do so. According to the order, 1st Global also breached its duty to seek best execution with respect to certain mutual fund investments and did not fulfill its duty of care obligations when it advised clients to invest in mutual funds and money market funds without undertaking an analysis to determine whether the share classes were in their best interests. The order finds that 1st Global failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.
The SEC's order finds that 1st Global 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, 1st Global consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $12,349,153, prejudgment interest of $2,524,000, and a civil penalty of $2,000,000. 1st Global has also agreed to distribute funds to harmed clients and comply with certain undertakings.
The SEC's investigation was conducted by Frank Goodrich and Kimberly L. Frederick from the Asset Management Unit in the Fort Worth and Denver Regional Offices, respectively. John Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.