SEC Enforcement Division Issues FAQs for Share Class Selection Disclosure Initiative

The Securities and Exchange Commission’s Division of Enforcement today issued answers to frequently asked questions (FAQs) on the Share Class Selection Disclosure Initiative, providing additional information about adviser eligibility, disgorgement, and the distribution of funds to clients.

The Share Class Selection Disclosure (SCSD) Initiative, announced on February 12, seeks to protect advisory clients from and return money to those affected by undisclosed conflicts of interest.

“It appears that many investment advisers are working diligently to evaluate whether they can take advantage of the initiative and we believe that providing these FAQs will help them make that determination,” said C. Dabney O’Riordan, Co-Chief of the Division of Enforcement’s Asset Management Unit.  “The initiative provides a framework to quickly and efficiently resolve these issues with self-reporting advisers and return money to their clients.”

Under the SCSD Initiative, the Enforcement Division will recommend standardized, favorable settlement terms to investment advisers who self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients.  In such cases the Enforcement Division will recommend settlements that do not impose a civil monetary penalty while requiring participating advisers to return ill-gotten gains to harmed advisory clients.

The cut-off date for self-reporting under the initiative is June 12.

Please direct questions regarding the initiative to SCSDInitiative@sec.gov.