AP Summary

SEC Charges Investment Adviser and Principal with Disclosure, Best Execution, and Compliance Failures

June 6, 2022

File No. 3-20880

June 6, 2022 - The Securities and Exchange Commission today announced settled charges against Kahn Brothers Advisors, LLC, a registered investment adviser based in New York, and Thomas Kahn, Kahn Brothers' principal owner and president, for misstatements and omissions to clients and prospective clients regarding the brokerage services provided by an affiliated broker-dealer, including failing to disclose that the fees charged by the affiliate were much higher than other broker-dealers charged for similar services.

According to the SEC's order, Kahn Brothers and Kahn failed to fully and fairly disclose to advisory clients all material facts related to the conflict that arose from Kahn Brothers' use of an affiliated broker-dealer to execute client transactions, including that the affiliate used a fixed commission schedule that all broker-dealers used prior to May 1975, and which resulted in clients paying commission charges of hundreds or even thousands of dollars per transaction.  In a rule change that took effect on May 1, 1975, the SEC eliminated the requirement that brokers charge fixed commissions, which allowed for competition among brokers and led to lower commission rates. But, according to the order, the affiliated broker-dealer continued to use the Pre-1975 commission schedule, and Kahn Brothers and Kahn did not fully disclose the associated high commission costs to clients. In addition, the SEC's order finds that Kahn Brothers and Kahn also made misleading statements to clients and prospective clients that they would seek to aggregate client transactions to reduce commissions, when contrary to these statements they virtually never aggregated client trades, which caused clients to pay higher commissions. The order finds further that Kahn Brothers and Kahn failed to seek best execution for advisory clients, and failed to adopt and implement written policies and procedures regarding their best execution obligations, and handling of trade aggregation.

The SEC's order finds that Kahn Brothers and Kahn willfully violated the anti-fraud provisions of Section 206(2) of the Investment Advisers Act of 1940 and that Kahn Brothers willfully violated, and Kahn caused Kahn Brothers' violations of, Section 206(4) of the Advisers Act and Rule 206(4)-7. Without admitting or denying the SEC's findings, Kahn Brothers and Kahn consented to a cease-and-desist order, a censure, and certain undertakings. In addition, Kahn Brothers and Kahn agreed to pay disgorgement of $701,799 and prejudgment interest of $146,100, and pay a civil penalty in the amount of $250,000.

The SEC's investigation was conducted by Luke Fitzgerald and supervised by Andrew Dean and Corey Schuster, both of the Asset Management Unit, with the assistance of Pascale Guerrier of the New York Regional Office, and Marshall Yi of the Los Angeles Regional Office, Division of Examinations' Office of Risk & Strategy, Quantitative Analytics Unit. The examination that led to the investigation was conducted by William Delmage, Michael Devaney, William Ostrow, Brian Flynn, and Kathleen Furey of the Division of Examinations in the New York Regional Office.

The SEC's Office of Investor Education and Advocacy has issued an investor alert on questions you should ask your investment professional about payments and fees it charges you.

Last Reviewed or Updated: June 6, 2022