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SEC Charges Investment Adviser with Failing to Disclose Conflicts, Orders It to Repay Clients

Sept. 6, 2022

File No. 3-21026

September 6, 2022 - The Securities and Exchange Commission today announced settled charges against Aventura Capital Management, LLC, a Florida-based registered investment adviser, for breaches of fiduciary duty arising from its affiliate's receipt of fees from Aventura Capital's advisory clients' investments.

According to the SEC's order Aventura Capital failed adequately to disclose its mutual fund share class selection practices and the resulting conflicts of interest to its advisory clients. The order finds that Aventura Capital selected share classes that paid fees to its affiliate, registered broker-dealer Aventura Securities, LLC, pursuant to Rule 12b-1 under the Investment Company Act of 1940 ("12b-1 fees") instead of available lower-cost share classes of the same funds that did not charge those fees. As set forth in the order, although eligible to do so, Aventura Capital did not self-report its affiliate's receipt of 12b-1 fees to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative. The order similarly finds that Aventura Capital failed to disclose that it selected higher-cost share classes of money market funds used as cash sweep vehicles for advisory clients, which also paid compensation to Aventura Securities, instead of available lower-cost share classes of the same funds that did not.

Moreover, the order finds that Aventura Capital engaged in securities transactions with its clients on a principal basis through Aventura Securities, for which Aventura Securities received mark-ups and mark-downs as compensation. However, Aventura Capital did not provide prior written disclosure to, or obtain consent from, its clients in advance of each transaction, according to the order. Last, the order finds that Aventura Capital failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.

The SEC's order finds that Aventura Capital violated the antifraud, principal trading, and compliance provisions of Sections 206(2), 206(3) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, Aventura Capital consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $623,324 plus prejudgment interest of $90,432 and a civil penalty of $225,000. Aventura Capital also agreed to distribute the funds to harmed investors, and to comply with certain undertakings.

The SEC's investigation was conducted by Cynthia Storer Baran and Michael Moran and supervised by Robert Baker, all of the Enforcement Division's Asset Management Unit in the Boston Regional Office. John Farinacci, an Asset Management Unit industry specialist, assisted with the investigation as did Elysse Frick, Claudio Gil, and Elizabeth Montefusco of the Boston Regional Office.

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