SEC Charges NJ-Based Investment Adviser with Hedge Clause Violations, Overcharging Clients
Jan. 11, 2022
File No. 3-20700
January 11, 2022 - The Securities and Exchange Commission today announced that Comprehensive Capital Management (CCM), a Rockaway, New Jersey-based investment adviser, has agreed to pay over $375,000 in disgorgement and penalties for including an inappropriate liability disclaimer in its advisory agreements, failing to rebate fees charged to certain retirement accounts, as well as failing to maintain accurate records and implement required compliance policies. This is the third action against the firm since 2013.
According to the SEC's order, CCM's advisory agreements included a liability disclaimer, commonly referred to as a "hedge clause," which could lead a client to incorrectly believe that the client waived a cause of action against the adviser provided by state or federal law. Such claims are non-waivable. In addition, the order alleges that a misleading disclosure in CCM's Form ADV Part 2A promised CCM clients who purchased variable annuities in IRA accounts from 2017 through March 2021 that either its affiliated persons would not receive commissions for the sale of such products, or that advisory fees would be offset against commissions paid to CCM's affiliated broker-dealer.
The SEC's order finds that CCM violated sections 204(a), 206(2), and 206(4) of the Advisers Act and Rules 204-2(a)(8) and 206(4)-7 thereunder. Without admitting or denying the SEC's findings, CCM agreed to a censure as well as to cease and desist from further violations of the charged provisions, and to pay disgorgement of $66,635, prejudgment interest of $9,019 and a $300,000 civil money penalty.
Previously, in 2013, the Commission found that CCM violated the federal securities laws by failing reasonably to supervise an associated person of CCM, who misappropriated over $16 million from investment advisory accounts managed by CCM. In 2019, the Commission instituted and settled administrative proceedings against CCM for breaches of fiduciary duty and inadequate disclosures regarding its mutual fund share class selection practices.
The SEC's investigation was conducted by Elizabeth Goody, Shannon Keyes, Desiree Marmita and Sheldon Pollock and was supervised by Lara Shalov Mehraban. The examination that led to the investigation was conducted Ken Fong and John Bulla, and supervised by George DeAngelis in counsel with Rachel Lavery.