Jury rules in favor of SEC in complaint that firm breached fiduciary duties

On Behalf of | Mar 30, 2022 | Financial News

A jury in Pennsylvania has ruled in favor of the Securities and Exchange Commission following its complaint against investment advisory firm Ambassador Advisors, according to a report by Wealth Management.

The verdict came last week after an eight-day trial in United States District Court. The jury found that Ambassador Advisors had breached its fiduciary duties in connection with mutual fund share class selection practices. The SEC first filed a complaint against the firm in 2020, alleging that Ambassador Advisors and its principals, Bernard Bostwick, Robert Kauffman and Adrian Young, had unlawfully invested their advisory clients in mutual fund share classes with 12b-1 fees when lower cost mutual fund share classes that were more appropriate and did not contain those fees were available to the clients.

As a result, the commission said, clients received a lower return on their investment while Bostwick, Kauffman and Young received additional compensation in the form of the 12b-1 fee revenue. The firm was believed to have received over $777,000 from those 12b-1 fees. According to the complaint, the defendants also violated their fiduciary duty by not disclosing to their clients these transactions and the conflict of interest involved. The SEC said that the firm’s conduct violated Section 206(2) of the Investment Advisers Act of 1940.

SEC Division of Enforcement Director Gurbir S. Grewal said the commission was pleased with the jury’s verdict, issuing a statement that read in part, “Investment advisers have fiduciary duties to act in their client’s best interest, to seek best execution of client transactions, and to fully and fairly disclose all material facts relating to conflicts of interest.”

The report noted that Ambassador Advisors had challenged the SEC’s allegations in a jury trial, unlike most similar cases that are resolved through a settlement. Responding to the verdict, Ambassador Advisors Director of Operations Robert Nayden said that the case stemmed from the SEC’s share class disclosure initiative. He said many firms had “settled as a path of least resistance” and added, “We were one of the only firms to challenge this SEC initiative of creating new regulation without following the formal rule making process.”

The SEC said that the U.S. District Court entered a summary judgment against Ambassador Advisors in December 2021, finding that the firm did not adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940.

Lewitas Hyman routinely represents investors nationwide who were harmed when financial professionals and their firms breached their fiduciary and other duties. Our team includes lawyers who have worked for large financial institutions, including Morgan Stanley and UBS Financial Services, and regulatory bodies such as the SEC. If you were the victim of a breach of fiduciary or other duties owed to you by a financial professional or financial firm, contact us at (888) 655 6002 or through our online contact form for a no-cost evaluation of your matter. 

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