SEC v. Cetera Advisors LLC and Cetera Advisor Networks LLC

Civil Action No. 1:19-cv-02461-MEH (D. Colo.)

On October 11, 2019, the SEC filed an Amended Complaint against Cetera Advisors LLC and Cetera Advisor Networks LLC (collectively, “Defendants” or “Cetera”). According to the Complaint, Cetera invested and held clients in mutual fund share classes that charged 12b-1 fees—which are recurring fees deducted from the fund's assets—even when it knew these clients were eligible to invest in lower-cost shares of the same funds without 12b-1 fees. Clients whom Cetera invested in the higher-cost, otherwise identical share classes paid additional compensation to Cetera for as long as they held these investments. The Complaint also alleged that Cetera participated in a program offered by its clearing broker whereby it agreed to share with Cetera revenues and service fees it received from certain mutual funds. As a result, Cetera had an incentive to favor these mutual funds in the program over other investments when advising clients. The Complaint further alleged that Cetera directed its clearing broker to mark-up certain fees charged to Cetera's advisory clients, which Cetera then received indirectly from these same clients.

According to the Complaint, Cetera failed to adequately disclose to its advisory clients each of these practices and the conflicts of interest associated with them. As a result of these failures, the SEC alleged that Cetera generated over $10 million in undisclosed compensation. The Complaint charged Cetera with violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. See the Commission’s Complaint.

Defendants consented to the entry of a Final Judgment against them, enjoining them from violating the provisions of the federal securities laws that are the subject of the allegations in the Complaint. The Court entered the Final Judgment on October 13, 2022. In the Final Judgment, the Defendants were ordered to jointly or severally pay disgorgement of $5,614,509; prejudgment interest of $990,961; and combined penalties of $2,000,000. The total amount ordered to be paid by all Defendants was $8,605,470. Defendants satisfied this obligation and made full payment to the Commission. The funds are being held in an SEC-designated account with the United States Department of the Treasury. See the Defendants’ Final Judgment.

On July 14, 2023, the Court established a Fair Fund so that the penalties, disgorgement, and prejudgment interest collected can be distributed to harmed investors. On the same day, the Court appointed Heffler, Radetich & Saitta, LLP as Tax Administrator for the Fair Fund. See the Court’s Order Establishing the Fair Fund and Appointing Tax Administrator.

On November 6, 2023, the Commission filed a Motion for an Order appointing Epiq Class Action & Claims Solutions, Inc. as Distribution Agent for the Fair Fund. See the Motion and Proposed Order.

On November 16, 2023, the Court appointed Epiq Class Action & Claims Solutions, Inc. as Distribution Agent for the Fair Fund. See the Court’s Order.

On January 22, 2024, the Commission filed a motion to approve a distribution plan, together with the distribution plan (the “Plan”). See the Commission’s Motion and the Plan. 
  
On January 23, 2024, the Court issued an order that approved the Plan.  See the Court’s Order. 
  
The Plan provides that the distribution of the Fair Fund shall be made to compensate investors who paid improperly disclosed 12b-1 Fees and/or Markups to Defendants in connection with investment advisory or brokerage services during the Relevant Period, as defined in the Plan. Investors who did not pay improperly disclosed 12b-1 Fees and/or Markups to Defendants in connection with investment advisory or brokerage services during the Relevant Period are ineligible to recover under this Plan. 
  
For more information, please contact the Distribution Agent: 
  
Epiq Class Action & Claims Solutions, Inc. 
Telephone Number: 877-267-0136 
Website: www.ceteraadvisorsfairfund.com
Email: info@CeteraAdvisorsFairFund.com