The Securities and Exchange Commission announced settled charges against David Lerner Associates, Inc. (DLA) for its failure to comply with Regulation Best Interest in two areas, Financial Advisor reported.
Under a consent order, the Syosset, New York-based registered broker-dealer agreed to pay about $200,000 in penalties, which includes disgorgement of about $126,000, a civil penalty of $60,000 and prejudgment interest of about $15,000.
The SEC alleged that from June 30, 2020 until at least September 15, 2024, DLA failed to exercise reasonable diligence, care, and skill to understand the potential risks, rewards, and costs associated with at least 253 recommendations made to retail customers. These recommendations were to sell Class A mutual fund shares held for less than one year and nearly simultaneously buy Class A mutual fund shares in a different fund family, which collectively imposed new upfront sales charges of approximately $230,000 paid to DLA and its registered representatives
The order found that the representatives who made these recommendations did not adequately consider cost, including the availability of Class A mutual fund shares within the same fund family, which the customer could buy without incurring a new sales charge.
“In addition, according to the SEC’s order, from June 30, 2020 until April 2026, DLA did not establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest with respect to the firm’s use of “Customized Investment Plans” (CIPs) with retail customers,” the SEC stated. “The order finds that each CIP was a self-described “individualized investment plan” for a specific retail customer, which listed a set of “suggested” or “potential” investments for the customer’s consideration. “
The SEC found that DLA did not have written policies and procedures reasonably designed to help ensure that CIPs were prepared and presented to retail customers in accordance with Regulation Best Interest.
DLA was found to have willfully violated Regulation Best Interest’s Care Obligation and Compliance Obligation, and thereby also willfully violated Regulation Best Interest’s General Obligation. Without admitting the findings, DLA agreed to a cease-and-desist order, a censure, and the financial penalties. The order also creates a Fair Fund to distribute the ordered monetary relief to harmed investors to the extent feasible.
The firm did not immediately respond to a request for comment, according to Financial Advisor.
It was also reported that a year ago, DLA was fined about $1 million by FINRA, which alleged the firm and three of its representatives sold unsuitable investments. The firm’s BrokerCheck history shows it has been involved in 22 regulatory events and 19 arbitrations since it was registered in 1976.
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