RIA Charged for Disclosure Failures and Misleading Statements
SEC Releases
Introduction
An RIA was charged this month (June, 2025) for failing in their fiduciary duties. The Firm allegedly made false and misleading fee disclosures while also failing to disclose material conflicts of interest.
These charges serve as a reminder that while the SEC has seen significant changes in leadership, and large restructuring of the Division of Enforcement, Firms of all sizes will still continue to face costly penalties for compliance failures.
What Happened?
According to the SEC:
- From at least April 5th, 2019, through December of 2024, clients of the Firm were charged both an annual advisory fee along with hourly fees for services.
- The Firm misrepresented that they “take care to assure” fees are capped at 2% annually when numerous clients faced higher charges.
- No documented effort was made to prevent the overcharging of their clients.
- Subjective criteria were utilized to determine the amount of fees charged, such as “how ‘demanding’ he found a client”.
- Approximately $125,000 in extra advisory fees and $325,000 in hourly fees were charged due to this system.
- No disclosure was made that hourly fees would be charged without notice, nor were the conflicts of interest in this process disclosed.
- A jury trial has been requested by the SEC.
Vigilant’s Conclusion
Firms must maintain a strong compliance program that helps limits their exposure to regulatory action from the SEC.
Successful compliance programs will provide on-going assessment of their risks based on their business model, and will remediate their processes to ensure that they are meeting their fiduciary obligations to their clients.
It would be prudent for Firms that have gone many years since their last SEC Exam or had many deficiencies in their latest SEC Exam to consider a Mock Exam performed by an industry leader like Vigilant.