The SEC did not order a civil penalty on any of the self-reporting firms, the agency said.
The SEC also charged Mid Atlantic Financial Management Inc., which was eligible to self-report as part of the initiative but failed to do so, the SEC said.
The SEC found that Mid Atlantic, whose affiliate received 12b-1 fees, failed to fully disclose the conflicts arising from its selection of more expensive mutual fund share classes for clients when lower-cost share classes for the same fund were available.
Among other things, the SEC ordered Mid Atlantic to pay over $1 million in disgorgement and prejudgment interest. Unlike the firms that self-reported as part of the initiative, however, the Commission also ordered Mid Atlantic to pay a $300,000 civil monetary penalty.
In September, the Financial Services Institute (FSI) launched a campaign to stop what it termed the SEC’s “drive-by regulation without rules,” including the SCSDI.
The SCSDI is a “prime example” of the SEC’s “regulation without rules,” the FSI said on the campaign website which includes a link advisors can use to communicate their dismay to Congressional lawmakers.
The problem with SCSDI is that SEC enforcement staff “could not cite a clear rule or regulation that had been violated. Instead, the SEC relied on previous settlements and past published guidance (which are statements of the staff’s view on a topic at a given time) to squeeze settlements from businesses today,” the trade group, which represents the independent broker-dealer industry and has 30,000 members, said in a statement.
“We have worked hard for years to develop a productive and constructive working relationship with the SEC,” David Bellaire, FSI executive vice president and general counsel said in a statement. “But there is no rational justification for moving the goalposts on firms that diligently complied with the rules on the books."
FSI and leaders of 200 member firms went to Capitol Hill on September 11 to raise the #RegsWithoutRules issue with Congress.