SunTrust Investment Services will pay nearly $1.2 million to settle SEC charges that it improperly sold clients expensive mutual fund share classes.
The Securities and Exchange Commission also censured SunTrust as it accepted an offer of settlement from the firm in an administrative proceeding on Thursday.
In its complaint, the SEC alleges that SunTrust recommended that its clients purchase class A shares of mutual funds charging front-end loads and 12b-1 fees. Without informing its clients that less expensive share classes were available, the firm collected more than $1.1 million in avoidable fees, creating a breach of fiduciary duty within more than 4,500 client accounts as the 12b-1 fees flowed back into SunTrust’s coffers, according to the SEC.
The SEC found that SunTrust failed to disclose that it might receive 12b-1 fees from its advisory clients on its Forms ADV. Furthermore, the SEC alleged, the firm failed to create and implement policies and procedures to prevent the improper sale of class A shares.
The SEC claims that it uncovered SunTrust’s activities in mid-2015 during a compliance review, spurring an investigation into the mutual fund sales. As the SEC looked into SunTrust’s practices, the firm separately began refunding the overcharged fees, plus interest, to affected clients. SunTrust has rebated more than $918,000 to existing clients, and more than $340,000 to former clients.
SunTrust will pay $34,560.93 in disgorgement and $4,950.66 in prejudgment interest. The firm will also pay a $1,148,071 civil penalty. In accepting the SEC’s settlement, SunTrust neither confirmed nor denied the agency’s findings.