Two Holbrook, N.Y.-based investment firms and an individual have agreed to pay a total of $1.8 million for selecting mutual funds that were different from what they were telling clients, the Securities and Exchange Commission announced Friday.
The firms and the individual have settled the charges through the agreement without admitting or denying guilt. The money will be returned to the clients who were harmed. Neither order specified the number of clients involved.
According to the SEC's orders, American Portfolios Advisors Inc., PPS Advisors Inc. and PPS's CEO and chief investment officer, Lawrence Nicholas Passaretti of St. Pete Beach, Fla., selected mutual fund share classes that were inconsistent with their disclosures to clients. The firms and Passaretti invested advisory clients in mutual fund share classes that paid higher fees even though less expensive share classes of the same funds were available.
The SEC said American Portfolios and PPS failed to disclose conflicts of interest, violated their duty to seek best execution, and failed to implement policies and procedures designed to prevent violations of federal securities laws in connection with their mutual fund share class selection practices. The SEC's orders said American Portfolios and PPS violated the antifraud and compliance provisions of federal securities laws and that Passaretti caused PPS's violations.
“Advisors must be vigilant in disclosing all conflicts of interest arising from compensation received based on investment decisions made for clients,” said C. Dabney O'Riordan, chief of the SEC Enforcement Division's Asset Management Unit. “The documents these advisers provided to clients were incorrect and investors were harmed.”
American Portfolios agreed to pay $895,353 in disgorgement and prejudgment interest and a civil penalty of $250,000. PPS and Passaretti agreed to pay $631,746 in disgorgement and prejudgment interest and a civil penalty of $75,000.