WBI Investments and Millington Securities to pay $1 million for misleading clients

The Securities and Exchange Commission (SEC) settled charges against investment advisers WBI Investments Inc. and Millington Securities Inc. for material misrepresentations made to clients about compensation Millington received in an institutional payment for order flow arrangement for routing client orders to certain brokerage firms for execution. The two companies agreed to pay a total of $1 million in penalties.

WBI and Millington served as advisers to a set of mutual funds and exchange-traded funds. Millington served as WBI’s primary introducing broker. SEC’s order found that Millington agreed to route WBI’s client orders to certain brokerage firms that agreed to pay Millington amounts they called “payments for order flow.” SEC’s order places the payments to Millington between $0.0125 and $0.0150 per share.

SEC penalty, fine

SEC also alleged that the brokerage firms executing WBI’s client trades boosted the execution prices by $0.02 to $0.03 per share for client buy orders and lowered them the same amount for client sell orders.  WBI and Millington also falsely assured the boards of the mutual funds and the ETFs that these institutional payment for order flow arrangements did not adversely affect the funds’ execution prices.

Joseph G. Sansone, Chief of the Enforcement Division’s Market Abuse Unit said:

WBI and Millington made misleading statements to their institutional clients about a conflict of interest. Investment advisers must exercise diligence in their correspondence and avoid providing clients with false comfort about payment for order flow arrangements.

The SEC found that WBI and Millington violated the Investment Advisers Act of 1940. Without admitting guilt, WBI and Millington agreed to pay monetary penalty of $750,000 for WBI and $250,000 for Millington.

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