A former registered investment adviser based in Holbrook, New York is facing multiple charges from the Securities and Exchange Commission, Investment News reports.
American Portfolios Advisors (APA) was penalized $1.75 million by the SEC over violations that include overbilling on alternative investments, failing to adequately disclose conflicts of interest, and producing compliance documents that were backdated by the firm’s chief compliance officer and president.
The allegations span the period from August 2020 to March 2023. According to the SEC’s order, “APA breached its fiduciary duty to certain of its advisory clients by failing to fully and fairly disclose the nature and extent of conflicts of interest associated with certain compensation paid to APA’s affiliated broker-dealer by an unaffiliated clearing broker in connection with trade execution and account services, resulting in additional costs to clients.”
American Portfolios Financial Services served as the introducing broker for transactions executed on behalf of American Portfolios’ advisory clients and received compensation from the clearing broker related to execution, clearing and custody services. American Portfolios Financial Services, an independent broker-dealer that also owned the RIA, was sold to Osaic, formerly Advisor Group, in 2022. The allegations do not reference Osaic.
It was determined that APA did not disclose that the affiliated broker-dealer charged fee markups on various types of transaction and account service fees, and instead misleadingly indicated that the unaffiliated clearing broker determined the amounts of the fees billed to APA clients.
APA was also accused of erroneously billing and collecting advisory fees on alternative investment positions, although no fees were supposed to be assessed on those positions, and it failed to refund a pro rata portion of prepaid quarterly advisory fees when clients terminated their accounts, as provided in APA’s client agreements.
Further, the SEC said that when its staff requested documents, ’former CCO Colin Michael Moors created and backdated compliance documents for three calendar years that purported to memorialize contemporaneous annual compliance reviews required by APA’s policies and procedures. According to the order, the three documents were signed and backdated by both Moors and former president Gary Bruce Gordon and were provided to SEC staff.
The SEC found that APA willfully violated Sections 204(a) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2(a)(17)(ii) thereunder. APA did not admit or deny the findings, but consented to a cease-and-desist order, a censure, and a civil penalty of $1,750,000.
The SEC also said that Moors and Gordon willfully aided and abetted and caused APA’s violation of Section 204(a) of the Advisers Act and Rule 204-2(a)(17)(ii) thereunder. The two did not admit or deny the findings, but they each consented to cease-and-desist orders and censures, Moors consented to a civil penalty of $10,000, and Gordon consented to a civil penalty of $20,000.
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