Unregistered Broker Activities | RIA Charged $821 Thousand
SEC Releases
Brief Introduction
An investment adviser was charged in September by the SEC for accepting compensation for brokerage services for its advisory clients.
The adviser agreed to disgorgement of $594,897 with interest of $76,896 and a civil penalty of $150,000.
This charge highlights the importance of understanding how fees charged to clients or funds affects one regulatory status, and the importance of cooperation with SEC investigation.
What Happened?
- The Firm offered investment adviser services to clients handling investments in traditional investments like securities or fixed income; however, they also offered alternative investments in real estate, venture capital, and private equity through funds created and advised by the Firm.
- Since 2012, the adviser accepted compensation from sellers of real estate to their clients, along with charging fund clients of the fund for similar transactions, as a percentage of the sale.
- The adviser also acted as an intermediary between sellers and their clients, evaluating investments and then choosing which clients would be most suitable and then solicited these clients to invest.
- The intention of the transaction fees was to compensate the advisor for costs related to the due diligence performed.
- Advisory fees were charged throughout this process to their clients.
- The Firm, upon recognition of the error during investigation, voluntarily offered to pay back the compensation with interest.
Vigilant’s Conclusion
It is vital that advisers closely monitor the activities they perform for clients, and the compensation received, to ensure that they are not inadvertently performing functions that require additional registration.
This highlights how third-party outsourced compliance can help firms understand how their actions will be interpreted by SEC investigators; sometimes a second set of eyes in a situation can provide useful insight.
It is also important to note that the SEC recognized the adviser’s cooperation with the investigation when determining the penalties applied.
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