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SEC Charges Cambridge with Failing to Disclose Conflicts over Mutual Fund Selection

The Securities and Exchange Commission has charged registered investment adviser Cambridge Investment Research Advisors Inc. with failing to disclose material conflicts of interest.

The Securities and Exchange Commission has charged registered investment adviser Cambridge Investment Research Advisors Inc. with failing to disclose material conflicts of interest and breaching its duty of care related to its selection of mutual funds and wrap accounts for clients.

According to the SEC, since at least 2014, the RIA “repeatedly breached its fiduciary duty to advisory clients” by failing to disclose material conflicts of interest. In particular, the SEC alleges that the firm invested client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to an affiliated broker-dealer, Cambridge Investment Research Inc., instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing.

These undisclosed investment practices, the SEC alleges, also allowed the Cambridge RIA to avoid paying millions of dollars in transaction fees.

The SEC further alleges that the RIA “converted hundreds of accounts to its more expensive wrap account program without adequate disclosure and without analyzing whether doing so was in its clients’ best interests.”

The SEC also claims that Cambridge Investment Research Advisors failed to disclose that its investment adviser representatives received compensation in the form of forgivable loans in exchange for meeting certain criteria such as maintaining certain asset levels and tenure with the firm.

The SEC charged Cambridge Investment Research Advisors with violating federal securities laws and seeks a permanent injunction, disgorgement including prejudgment interest, and civil penalties. The complaint also names Cambridge Investment Research as a relief defendant.

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