SEC Charges Registered Investment Adviser and Broker-Dealer with Defrauding Advisory Clients
Litigation Release No. 24643 / October 15, 2019
Securities and Exchange Commission v. Cetera Advisors, LLC and Cetera Advisor Networks LLC, Civil Action No. 1:19-cv-02461 (D. Colo., filed August 29, 2018, amended October 11, 2019)
The Securities and Exchange Commission filed an amended complaint on October 11, 2019 adding Cetera Advisor Networks LLC, a registered investment adviser and broker-dealer, as a defendant in its previously filed action against Cetera Advisors, LLC for defrauding retail advisory clients. The addition of Cetera Advisor Networks to the SEC's action brings defendants' total alleged unlawful gains that the SEC seeks to recover to over $21 million.
According to the SEC's amended complaint, filed in the U.S. District Court for the District of Colorado, Cetera Advisor Networks breached its fiduciary duty and defrauded retail advisory clients by, among other things, failing to disclose conflicts of interest related to the firm's receipt of undisclosed compensation in the form of 12b-1 fees, revenue sharing, administrative fees, and mark-ups. The SEC's initial complaint against Cetera Advisors LLC, filed in federal court in Colorado in August, charged Cetera Advisors LLC with similarly failing to adequately disclose to its advisory clients unlawful practices concerning undisclosed compensation and the conflicts of interest associated with them.
The SEC's amended complaint charges defendants with violating the antifraud, fiduciary, and conflicts of interest provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, and seeks permanent injunctions, disgorgement of ill-gotten gains and prejudgment interest, and penalties.
The SEC's investigation of Cetera Advisor Networks was conducted by Andrew Shoenthal and Malinda Pileggi of the SEC's Asset Management Unit and the Chicago Regional Office and supervised by Paul M. Montoya. The SEC examination that led to the investigation of Cetera Advisor Networks was conducted by Bill Chiu, Stacey Gohl, Kent McAllister, and Ms. Pileggi of the Chicago Regional Office and supervised by Will Davis. The continuing litigation will be handled by Mr. Shoenthal, Ms. Pileggi, and Jonathan Polish of the Chicago Regional Office and Marc Ricchiute, Greg Kasper, and Chris Martin of the Denver Regional Office.