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Firm Settles with SEC for $1.3M Over 12b-1 Fees, Revenue Sharing

By Alex Padalka June 4, 2021

The Securities and Exchange Commission says it has settled with a wealth management practice over alleged disclosure failures related to mutual fund share class selection, 12b-1 fees and revenue sharing.

Centaurus Financial, a dually registered investment advisor firm and broker-dealer, allegedly failed to fully disclose its conflicts of interest related to mutual fund share classes since at least 2014, according to an administrative proceeding document the regulator published on Wednesday.

More specifically, Centaurus allegedly advised clients to buy share classes for which it received 12b-1 fees when those clients were eligible for lower-cost share classes of the same funds, the SEC says.

Moreover, the regulator alleges that Centaurus also invested clients' assets in certain mutual funds in its no-transaction fee program that in fact generated revenue for the company from Centaurus’ unnamed clearing broker, as well as in cash sweep products that also resulted in Centaurus receiving revenue sharing payments, according to the regulator.

In each of those cases, the SEC alleges, Centaurus failed to provide adequate disclosure about its alleged conflicts of interest.

Centaurus consented to a censure and to pay $907,377 in disgorgement, plus prejudgment interest of $124,019, as well as $250,000 civil monetary penalty, without admitting or denying the findings, according to the regulator.

The SEC adds that Centaurus took remedial actions in September 2018 and cooperated with the regulator’s staff.

The SEC has been aggressively pursuing alleged violations of mutual fund share class selection and 12b-1 fee disclosures for several years now. In 2018, the regulator rolled out its Share Class Selection Disclosure initiative, which offered firms that self-reported violations some leniency and resulted in close to $140 million being returned to investors, the regulator has said.

Centaurus, despite taking remedial actions in regard to its alleged violations, didn’t take part in the self-disclosure initiative, according to the SEC.

Since the initiative concluded in April 2020, the regulator has continued actively pursuing alleged violators, reaching an $18.4 million settlement with U.S. Bancorp Investments a $22.9 million settlement with Voya Financial Advisors, among others.

And in December, the SEC settled with Prudential subsidiary Pruco Securities for close to $18.3 million over alleged violations in the firm’s mutual fund share class selection and wrap fee programs.

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Tags:  Regulatory/legal issues , Prudential , Voya Financial , Securities and Exchange Commission

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