A New York-based investment adviser has agreed to pay nearly $500,000 for violations relating to its fee calculations, according to ThinkAdvisor.
The Securities and Exchange Commission announced settled charges against Papamarkou Wellner Asset Management, Inc. for failing to comply with the terms of its advisory agreements about the calculations. It was determined that the firm provided disclosures to clients that were materially inconsistent with its actual advisory fee offset practices, and failed to implement certain written compliance policies and procedures.
The SEC found that from 2004 until March 2024, Papamarkou’s client advisory agreements provided that if the firm or its affiliated broker-dealer received referral, solicitation or placement fees from a third-party investment adviser, fund manager, or issuer on account of a client’s investment, Papamarkou would offset the client’s advisory fee by the amount of such fee, to the extent that it did not exceed the client’s advisory fee. In addition, Papamarkou’s Form ADV Part 2A Brochures from at least 2015 to January 2022 similarly described its practice to offset client advisory fees.
“The order finds that, contrary to these documents, between at least 2019 and January 2022, Papamarkou did not deduct from client advisory fees a portion of the fees its affiliated broker-dealer received from six third-party fund managers and that Papamarkou failed to credit clients with at least $282,921.82,” the SEC stated. “The order further finds that Papamarkou’s practice created a conflict of interest because it had an incentive to recommend investments in funds managed by the fund managers because of the additional compensation it stood to receive without offsetting client advisory fees by the same amount, and that Papamarkou did not disclose this conflict or its extent to its clients.”
The SEC also determined that from at least 2019 through March 2024, Papamarkou failed to implement certain of its written compliance policies and procedures that required the firm to ensure that it calculated client advisory fees in the manner described in its advisory agreements and to update or amend the agreements to accurately reflect its business practices.
Papamarkou was charged with willfully violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.
Without admitting the SEC’s findings, Papamarkou agreed to a cease-and-desist order, a censure, and to pay disgorgement of $282,921.82, prejudgment interest of $81,037.23, and a civil penalty of $125,000.00. The monetary relief will be distributed to affected clients to the extent feasible.
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