The Securities and Exchange Commission said it has ordered First Republic Investment Management (FRIM) to pay a penalty of over $1.8 million due to alleged violations regarding a revenue sharing agreement, Advisor Hub reports.
According to the SEC’s administrative order published last week, First Republic invested money from its clients in certain mutual funds and cash sweep products that resulted in its affiliated broker receiving revenue sharing payments pursuant to an agreement with its unaffiliated clearing broker.
By not disclosing the conflict of interest resulting from the arrangement, which dated back to February 2014, FRIM was accused of violating its fiduciary duty.
The commission said the firm also caused certain advisory clients to invest in share classes of mutual funds that paid revenue sharing when share classes of the same funds were available to the clients that would have a more favorable value, thus breaching its duty to seek best execution. It was alleged that First Republic had a financial incentive to recommend mutual funds covered by the agreement over other investments.
In addition, the SEC alleged that FRIM failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations of the Advisers Act.
Under the settlement, FRIM was censured, ordered to pay $1,825,953 in disgorgement, prejudgment interest and a civil penalty, and was ordered to cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 promulgated thereunder.
First Republic did not admit or deny the allegations of the SEC. As part of the order, the firm was said to have reviewed and corrected its disclosure documents, reviewed its policies and procedures, and moved clients out of certain share classes and sweep accounts as needed.
Hyman Cotter PC 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 bring a unique level of knowledge when representing the rights of investors. If you were the victim of a breach of fiduciary or other duties owed to you by a financial professional or financial firm, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a no-cost evaluation of your matter.
