The Securities and Exchange Commission announced settled charges against an Arizona-based investment adviser and its former CEO for violations including breaches of fiduciary duty, according to InvestmentNews.
The SEC said that Phoenix-based Foundations Investment Advisors, LLC and its founder and former CEO, Bryon E. Rice, agreed to pay about $2.1 million in combined penalties in the matter. Regulators determined they failed to disclose Rice’s trading activity and profits he shared with a sub-advisor that provided investment model portfolios to Foundations’ clients.
The SEC’s administrative order detailed violations spanning the period from 2019 to 2025. It stated that Foundations failed to disclose conflicts of interest related to investments that it recommended to its approximately 25,000 advisory clients.
According to the commission, the conflicts were as follows:
(1) a profit-sharing interest that Rice had in a Foundations sub-adviser, which provided an investment model portfolio to Foundations’ clients that included an exchange-traded fund that another adviser managed (the “ETF”);
(2) Foundations having an expense sharing agreement related to four other exchange-traded funds that gave Foundations an incentive to recommend these products to clients; and
(3) affiliations between Foundations’ former Chief Investment Officer and other parties that acted as an adviser and sub-adviser to Foundations and the ETF.
The SEC determined that in September 2020, an entity wholly owned by Rice paid $100,000 for a 4.99% profit-sharing interest in what the agency called “Sub-Adviser A,” a firm that provided model portfolios to Foundations’ clients. Rice then sat on the investment committee that directed client assets into the subadvisor’s funds.
By the end of 2020, approximately 66% of Foundations’ client assets were invested in the subadvisor’s exchange-traded funds. According to the order, Rice received two payments totaling $434,162 from the subadvisor before terminating the arrangement in 2023. Foundations did not disclose the conflict until a Form ADV update in March 2021.
Foundations and Rice were found to have willfully violated Section 206(2) of the Investment Advisers Act of 1940, Foundations violated Sections 206(4) and 204A of the Advisers Act and Rules 206(4)-7 and 204A-1 thereunder, and that Rice caused Foundations’ violations of Sections 206(2), related to failing to timely disclose Rice’s profit-sharing interest in the Foundations sub-adviser, and 204A and Rule 204A-1 thereunder, related to failing to pre-clear Rice’s personal securities transactions.
Without admitting the SEC’s findings, Foundations consented to a cease-and-desist order, a censure, and to pay disgorgement of $152,628, prejudgment interest of $15,031.17, and a civil penalty of $1,200,000. Without admitting the SEC’s findings, Rice consented to a cease-and-desist order, a censure, and to pay disgorgement of $434,162, prejudgment interest of $5,395.28, and a civil penalty of $354,675.
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