SCF failed to disclose the conflict of interest to its clients nor did it adopt and implement procedures to prevent violations of federal securities laws regarding its mutual fund and money market sweep fund share class selection practices. In this way, SCF violated its duty to seek best execution.
Dabney O’Riordan, Co-Chief of the SEC Enforcement Division’s Asset Management Unit said:
An adviser must inform clients of its conflicts of interest when recommending investments, including when it or its affiliates are receiving financial benefits for those investment recommendations. For years SCF failed to disclose its financial conflicts even though it was advising clients to purchase more expensive share classes of mutual funds and money market funds that would hurt client long-term returns.
The US regulator found that SCF violated the antifraud and compliance. Without admitting or denying these findings, SCF will disgorge $544,446 of allegedly ill-gotten gains plus prejudgment interest of $22,746, as well as $200,000 civil penalty. SCF has agreed to be censured and to distribute the funds to harmed investors.
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