Commonwealth Financial urged the First Circuit on Friday to overturn a $93 million award, arguing that the Massachusetts federal court was too quick to conclude that its fee disclosure practices harmed investors. The SEC’s lawsuit, which resulted in a summary judgment ruling in April, found that Commonwealth had intentionally withheld material information about fees associated with certain investment funds.
The SEC claimed that, under an agreement with Fidelity affiliate National Financial Services, Commonwealth earned more on certain funds than customers were told. U.S. District Judge Indira Talwani ruled that Commonwealth must disgorge $65 million, pay a $6.5 million penalty, and another $22 million in interest. The SEC argued that the firm’s failure to disclose the cost structure of these funds violated investor rights, asserting that many clients were unaware of the higher fees tied to some of the investment products.
Thomas M. Byrne of Eversheds Sutherland LLP, representing Commonwealth, argued that the court failed to consider the different needs of investors. Some clients, he said, might prefer a per-transaction fee for long-term investments, while others, such as frequent traders, would be more concerned with management fees. Byrne emphasized that investor testimony was necessary to determine the significance of the omission.
