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Merrill Lynch, Pierce, Fenner & Smith, Eagle Strategies and Cozad Asset Management ordered to reimburse investors



The Securities and Exchange Commission announced settling charges against two advisory firms that self-reported as part of the Division of Enforcement’s Share Class Selection Disclosure Initiative and a third advisory firm that self-reported within months of the initiative’s self-reporting deadline. The SEC’s orders on these firms are the final cases the Division intends to recommend under the terms of the initiative. The SEC has ordered over $139 million to be returned to investors as part of the initiative.

The Division of Enforcement announced the voluntary initiative on 12 February 2018 to provide advisers with the opportunity to self-report their failure in disclosing conflict of interests in selecting for their clients more expensive mutual fund share classes that paid 12b-1 fees when lower-cost share classes were available for the clients and be eligible for standard settlement terms that did not include the .imposition of a civil penalty. Between 11 March 2019 and 30 September 2019 the Commission issued orders against 95 advisers that chose to participate in the initiative.

Securities and Exchange Commission SEC

C. Dabney O’Riordan, Co-Chief of the Asset Management Unit said:

This incredibly successful initiative led to the return of almost $140 million to harmed investors, stopped wrongful conduct, and highlighted the importance of an adviser’s obligations to provide full and fair disclosures to clients. We continue to actively pursue disclosure failures that financially benefit the adviser to the detriment of the client.

The Commission found that Merrill Lynch, Pierce, Fenner & Smith Incorporated and Eagle Strategies LLC violated Investment Advisers Act of 1940. As a result, the SEC ordered that the companies are censured, that they cease and desist from future violations, that they pay disgorgement and prejudgment interest totaling over $425,000 and that they return the money to investors.

Cozad Asset Management Inc. was also charged. The company self-reported its share class selection violations to the Commission in the months after the initiative deadline. The Commission found that Cozad did not fully disclose the conflicts arising from its choice of more expensive mutual fund share classes for clients when lower-cost share classes for the same fund were available. The SEC’s order finds that Cozad violated the Advisers Act and ordered that it is censured, that it cease-and-desist from future violations, that it pay disgorgement and prejudgment interest totaling over $400,000, a $10,000 civil penalty and return the money to investors.

Since September 2019, The SEC has issued orders against two companies part of the self-report initiative but failed to do so – Mid Atlantic Financial Management Inc. (ordered to pay $1,027,002 in disgorgement and prejudgment interest and a $300,000 civil penalty) and BPU Investment Management Inc. (ordered to pay $692,107 in disgorgement and prejudgment interest and a $235,000 civil penalty).


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Merrill Lynch, Pierce, Fenner & Smith, Eagle Strategies and Cozad Asset Management ordered to reimburse investors

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