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SEC charges Cambridge Investment Research with failing to disclose conflicts of interest

On Behalf of | Mar 14, 2022 | Securities and Compliance

The Securities and Exchange Commission has charged Cambridge Investment Research (CIRA) with breaching its fiduciary duty, according to Investment News. The SEC filed a complaint in federal court against CIRA, a registered investment advisor based in Fairfield, Iowa with $68.5 billion in client assets.

In the complaint, the SEC alleged that since at least 2014, the firm failed to disclose material conflicts of interest and breached its duty of care to clients with regards to its selection of mutual funds and wrap accounts for clients.

CIRA is accused of investing client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to its affiliated broker-dealer, Cambridge Investment Research, Inc. The SEC said the firm could have put the assets in lower-cost share classes and investment options that would have yielded less or no revenue sharing. The complaint adds that these undisclosed practices allowed CIRA to avoid paying millions of dollars in transaction fees.

CIRA also allegedly 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. In addition the firm did not disclose that its investment advisor representatives received compensation in the form of forgivable loans in exchange for meeting certain criteria such as maintaining certain asset levels and tenure with CIRA, according to the SEC.

CIRA was charged with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The complaint seeks a permanent injunction, disgorgement including prejudgment interest, and civil penalties.

A Cambridge spokesperson said the firm denies the allegations and has engaged counsel to “vigorously defend itself.”

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. We have a depth of experience resolving cases through various means, including arbitration and litigation when necessary. 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.