SEC fines Madison Avenue Securities over breach of fiduciary duties

On Behalf of | Jun 8, 2022 | Financial News

The Securities and Exchange Commission announced that it is penalizing a registered investment advisor and broker-dealer for misconduct involving the receipt of third-party compensation, reports ThinkAdvisor.

The SEC took the action against San Diego based-Madison Avenue Securities, alleging that the firm breached its fiduciary duty to seek best execution.

According to the SEC, the unaffiliated clearing broker for Madison Avenue Securities shared a portion of the revenue it received when Madison invested clients in certain money market funds. The commission said Madison placed cash from investors into money market fund options for which it received revenue sharing payments even though there were other money market funds available that at times would have paid clients higher yields, but for which Madison would have received less or no revenue sharing.

“By causing certain advisory clients to invest in more expensive share classes of mutual funds when share classes of the same funds were available to the clients that presented a more favorable value under the particular circumstances in place at the time of the transactions, Madison violated its duty to seek best execution for those transactions,” the SEC stated in its administrative order.

The firm allegedly did not adequately disclose the conflicts associated with the compensation it was receiving from these investments. Madison also did not properly disclose 12b-1 fees it received on certain funds from February 2016 to April 2018, the SEC said.

In addition, the order said that Madison failed to adopt and implement written compliance policies reasonably designed to prevent violations of the Investment Advisers Act of 1940 in connection with its practices concerning cash sweep revenue sharing, mutual fund and money market fund share class selection.

The firm was found to have willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.

Madison Avenue Securities was censured, ordered to pay disgorgement, prejudgment interest, and a civil penalty totaling over $803,000, and was ordered to cease and desist from any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 promulgated thereunder.

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 Lewitas Hyman at (888) 655 6002 or through our online contact form for a no-cost evaluation of your matter.

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