The Securities and Exchange Commission (SEC) revealed that BB&T Securities has finally agreed to reimburse over $5 million to individual investors and to pay a $500,000 fine as part of a settlement for charges that a company it acquired deceived its clients that they were being given all brokerage services by an in-house team at a significant discount, while in reality there were other cheaper options outside the company.
The SEC order states that Valley Forge Asset Management did not disclose the full price of its brokerage services and used deceptive statements to persuade its clients to use the services of their in-house broker. The firm promised high quality services at an affordable cost, while the SEC’s order found that Valley Forge failed to provide any extra services to the advisory clients being served by the internal brokerage than it did to those clients who chose external brokerages with much lower commissions. The order states that the firm charged commissions that were about 4.5 times higher than those charged by external brokerages, while concealing the vast price difference with the claim that it was a 70 percent discount to its normal commission rates.
The SEC’s Associate Director of Enforcement for the Philadelphia Regional Office, Kelly L. Gibson commented:
Valley Forge put its own interests ahead of its advisory clients, causing them to spend more money unnecessarily by portraying inaccurate costs and benefits of using its in-house brokerage.
Dual registrants and advisers with affiliated broker-dealers must accurately disclose all conflicts of interest arising from their brokerage arrangements. The SEC’s examination and enforcement programs will continue to identify these types of violations and return money to harmed retail investors as quickly as possible.
The SEC’s order found that BB&T Securities, which bought Valley Forge, hence, inheriting its obligations, violated Sections 206(2) and 207 of the Investment Advisers Act of 1940. BB&T Securities agreed to a censure, a cease-and-desist order and offered to pay disgorgement of $4,712,366 and prejudgment interest of $497,387, which will be distributed to the affected clients via a Fair Fund, in addition to a $500,000 fine. BB&T Securities had terminated Valley Forge’s former brokerage service by changing its cost structure and disclosures policy.