SEC Charges Investment Adviser with Failing to Disclose Conflicts and Orders It to Repay Harmed Clients
Jan. 11, 2022
File No. 3-20701
January 11, 2021 - The Securities and Exchange Commission today announced settled charges against registered investment adviser O.N. Investment Management Company (ONIMCO) for breaches of fiduciary duty in connection with its selection of investments that provided ONIMCO's parent company with compensation.
The SEC's order finds that ONIMCO advised clients to purchase or hold mutual fund share classes that charged fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (12b-1 fees) even though lower-cost share classes of those same funds were available to those clients. As a result, the order finds, ONIMCO's parent and affiliated broker-dealer, O.N. Equity Sales Company (ONESCO), received 12b-1 fees that it would not have collected had ONIMCO's advisory clients been invested in the available lower-cost share classes of those funds. According to the order, ONIMCO did not self-report its parent's receipt of 12b-1 fees to the SEC pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative, although it was eligible to do so. The order also finds that ONIMCO invested clients in certain mutual fund share classes and money market funds that resulted in revenue sharing payments to its parent. According to the order, ONIMCO provided no disclosure or inadequate disclosure of the conflicts of interest arising from its parent's receipt of 12b-1 fees and revenue sharing. As set forth in the order, ONIMCO also failed to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the federal securities laws in connection with its mutual fund share class and money market fund selection practices.
The SEC's order finds that ONIMCO willfully 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 SEC's findings, ONIMCO will pay disgorgement of $866,257, prejudgment interest of $162,396, and a civil penalty of $210,000. ONIMCO has agreed to a cease-and-desist order, to be censured, to distribute the funds to harmed investors, and to comply with certain undertakings.
The SEC's investigation was conducted by Jessica Neiterman and HelenAnne Listerman and supervised by Corey A. Schuster, all from the Asset Management Unit. John D. Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.