AP Summary

SEC Charges Investment Adviser for Disclosure Failures Related to Share Class Selection Practices

Sept. 17, 2020

ADMINISTRATIVE PROCEEDING
File No. 3-20012

September 17, 2020 - The Securities and Exchange Commission today announced settled charges against Wisconsin-based registered investment adviser Coordinated Capital Securities, Inc. arising out of its mutual fund share class selection practices.

The SEC's order finds that, from January 2014 to December 2018, Coordinated Capital failed to adequately disclose the conflict of interest arising from its selection of mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds. In addition, the order finds that Coordinated breached its duty to seek best execution for its clients by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions were available to the clients. According to the SEC's order, Coordinated Capital also failed to adopt and implement written policies and procedures reasonably designed to prevent these violations. Although Coordinated Capital did not self-report to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative even though it was eligible to do so, the SEC's order recognizes Coordinated Capital's cooperation and the remedial actions promptly undertaken by the firm.

The SEC's order finds that Coordinated Capital 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 findings, Coordinated Capital consented to cease and desist from violations of these provisions and a censure. Coordinated Capital also agreed to pay disgorgement of $473,202 plus prejudgment interest of $38,759, and a civil penalty of $70,000, which takes into consideration Coordinated Capital's financial condition and inability to pay a greater civil penalty amount.

The SEC's investigation was conducted by Jonathan I. Katz and supervised by Jeffrey A. Shank of the Asset Management Unit. John Farinacci, an industry expert in the Asset Management Unit, and Anne Tushaus in the Chicago Regional Office assisted with the investigation.

Last Reviewed or Updated: Sept. 17, 2020