SEC Adds Another Cetera Firm to Fraud Complaint
The Securities and Exchange Commission has amended a complaint to add Cetera Advisor Networks LLC, a registered investment adviser and broker-dealer, as a defendant in its previously filed action against Cetera Advisors LLC for allegedly defrauding retail advisory clients.
The Securities and Exchange Commission has amended a complaint to add Cetera Advisor Networks LLC, a registered investment adviser and broker-dealer, as a defendant in its previously filed action against Cetera Advisors LLC for allegedly defrauding retail advisory clients.
The addition of Cetera Advisor Networks to the SEC’s action brings defendants’ total alleged unlawful gains that the SEC seeks to recover to more than $21 million, compared to $10 million in in the original complaint.
According to the SEC’s amended complaint, Cetera Advisor Networks is also accused of breaching its fiduciary duty and defrauding retail advisory clients by failing to disclose conflicts of interest related to the firm’s receipt of undisclosed compensation in the form of 12b-1 fees, revenue sharing, administrative fees, and mark-ups. The SEC’s initial complaint against Cetera Advisors was filed in late August.
According to the SEC’s complaint, both Cetera firms invested and held clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – when clients were eligible to invest in lower-cost shares of the same funds without such fees.
The SEC claims that the firms invested clients in the higher-cost and otherwise identical share classes which paid additional compensation to Cetera for as long as they held the investments.
In addition, the Cetera firms and their clearing broker allegedly agreed to share revenues and service fees received from the sale of certain mutual funds, and the SEC argues that Cetera had an incentive to favor these mutual funds in the program over other investments when advising clients.
The SEC claims that the Cetera firms directed its clearing broker to mark-up certain fees charged to Cetera’s advisory clients by up to 300 percent, which Cetera then received indirectly from these same clients.
Last month, another Cetera firm, Cetera Investment Advisers, agreed to pay a penalty of $185,000 to settle SEC charges that it paid cash fees to approximately 350 banks to solicit investment advisory clients on behalf of the firm without providing proper disclosures to clients.
The complaint, filed in the U.S. District Court for the District of Colorado, seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and penalties.
