And just like that … the victory by the Securities and Exchange Commission against an RIA was snatched back.

A  judge in Pennsylvania yesterday rescinded a verdict that found Ambassador Advisors and three of its co-owners overcharged clients by putting them in proprietary mutual fund share classes with expensive 12b-1 fees instead of cheaper share classes.

The day before, a jury in the U.S. District Court for the Eastern District of Pennsylvania had found in favor of the SEC in a four-count civil complaint against Ambassador Advisors, a Lancaster, Pa., firm with $630 million in assets, according to its Form ADV.

The complaint also named three Ambassador principals, including Bernard I. Bostwick, Robert E. Kauffman, and Adrian E. Young, who were one-third co-owners of the firm during the time the mutual fund classes in question were being purchased from August 2014 to December 2018.

During that period, according to the original complaint, the firm and its advisors “unlawfully invested their advisory clients in mutual fund share classes with 12b-1 fees when lower-cost mutual fund share classes were available to the clients.” As a result, the clients got lower returns on their investments, the SEC argued, and the defendants violated a fiduciary duty to disclose conflicts of interest.

Bostwick received 24% to 29% of the 12b-1 fee revenue, while Kauffman received 42% to 52% and Young received between 24% and 29%, the original complaint said.

For example, in May 2015, the complaint said, the three advisors started putting clients in the American Century Emerging Markets Fund Class A shares, which charged 25 basis points in 12b-1 fees, when the investor class didn’t charge those fees or ticket charges. Bostwick, Kauffman and Young made $30,000 in fee revenue, the complaint said. They made another $25,000 on such fees on the Clearbridge Large Cap Growth Fund Class A in 2016 and 2017 and over $60,000 on shares of the MFS Global Alternative Strategy Fund, which they invested in 2014, the SEC claims (though it said the MFS Global alternative would have likely added ticket charges for clients).

Ambassador argued in court documents that it did make the proper disclosures in its compensation with the fund company American Portfolios and that the SEC stretched the definition of “disclosure” to suggest Ambassador should have discussed the relative merits of the different share classes rather than simply saying some classes have charges attached.

“The total mix of information made available to Ambassador’s clients shows that the firm disclosed the material facts of the commission-based compensation arrangement with American Portfolios, which included 12b-1 fees for the sale of mutual funds, and the conflict of interest created by the compensation arrangement.”

The SEC argued in response, “By selecting the more expensive share class, [the] defendants did not avoid unnecessary costs to clients, as required. Although defendants contest this legal obligation, to resolve this, the court simply needs to decide a legal question on the scope of best execution. This is an easy ask. The law is clear that an adviser’s duty to avoid unnecessary costs applies to all investment decisions, including mutual fund investments.”

The original complaint asked for the firm to disgorge ill-gotten gains. But in rescinding the order on Thursday, U.S. District Court Judge John M. Gallagher wrote, “The judgment was entered prematurely in error. Final judgment will be entered in this matter only after the court has resolved plaintiff’s requests for relief.”

The court asked for a telephone status conference with the attorneys on April 7 and will discuss the time line for meeting the SEC’s relief request.