The SEC is seeking an additional $11 million from Cetera Advisors in an amendment to an earlier complaint that accused the company of defrauding its retail advisory clients.
The amended complaint has added Cetera Advisor Networks LLC, a registered investment advisor and broker-dealer, as a defendant in the scam that allegedly defrauded retail advisory clients. The new action accuses Cetera Advisor Networks of generating more than $10 million in undisclosed compensation, bringing the total alleged unlawful gains in the case to $21 million, the SEC sdaid.
Cetera Advisors and Cetera Advisor Networks are both owned by Cetera Financial Group Inc.
The SEC’s amended complaint, filed in the U.S. District Court for the District of Colorado, alleges that Cetera Advisor Networks breached its fiduciary duty and defrauded retail advisory clients by, among other things, failing to disclose conflicts of interest related to the firm's receipt of undisclosed compensation in the form of fees, revenue sharing, administrative fees, and mark-ups.
The initial complaint filed against Cetera Advisors LLC, in federal court in Colorado in August, similarly charged Cetera Advisors LLC with failing to adequately disclose to its advisory clients unlawful practices concerning undisclosed compensation and the conflicts of interest associated with them.
The complaint cited four separate instances in which Cetera Advisors and Cetera Advisor Networks cheated clients.
From September 2012 to December 2016 for Cetera Advisors, and from April 2014 through December 2016 for Cetera Advisor Networks, the complaint alleged that the firms failed to act in its clients’ best interests by selecting and holding mutual fund investments that cost its clients more and paid Cetera more when it knew that lower-cost, otherwise identical investments were available to its clients.
During the same period of time, the complaint alleged that Cetera did not disclose to its clients that it received compensation from a third-party broker-dealer for investing Cetera’s clients in certain mutual funds that paid revenue sharing over other mutual funds that did not. The arrangement provided a financial incentive for Cetera to maintain a relationship with the clearing broker so it could continue to receive revenue sharing, the SEC said, adding that Cetera received at least $4.1 million as a direct result of these investments.
From September 2014 through March 2018 for Cetera Advisors and from April 2014 through December 2016 for Cetera Advisor Networks, the complaint said the firms also failed to disclose the conflict stemming from their receipt of at least $4.3 million of compensation that certain mutual funds paid to the clearing broker, which the clearing broker then shared with Cetera. These payments created a conflict of interest because they provided a financial incentive for Cetera Advisors and Cetera Advisor Networks to select the mutual funds that paid fees over other investments when providing investment advice to their advisory clients, and because the arrangement with the clearing broker allowed Cetera to continue to receive service fees, the SEC said.
From at September 2012 through March 2018 for Cetera Advisors and from April 2014 through March 2018 for Cetera Advisor Networks, the SEC complaint alleged that Cetera directed its clearing broker to mark up certain fees by up to 300% for advisory clients. The clearing broker paid these fees to Cetera after receiving them from clients, the SEC said. These payments created a conflict of interest, and again, there was no disclosure from Cetera to its clients, the SEC said.