Breach of Fiduciary Responsibility and Conflicts of Interest
The Securities and Exchange Commission publicizes the transgressions of a New York-based investment adviser, deVere USA, Inc. The firm, for its wrongdoing, agrees to an $8 million civil penalty for its failure to disclose conflicts of interest. A secondary effect of the SEC settlement results in the creation of a “Fair Fund.” The purpose of the fund is to facilitate the distribution of the penalty to the victims. In addition to the penalty, the SEC announces a litigation action against two of the deVere USA investment adviser representatives. Surprisingly, one of the litigants is the deVere USA CEO.
According to the SEC’s order, deVere USA fails to disclose agreements with overseas product and service providers. The lack of disclosure results in favorable compensation to deVere USA advisers and an overseas affiliate. The SEC order indicates that the undisclosed compensation creates an incentive for deVere USA to recommend a pension transfer and particular product or service. Furthermore, the order finds that deVere USA articulates materially misleading statements regarding tax treatment and investment options.
In like manner, the SEC files charges against former deVere USA CEO, Benjamin Alderson, and former manager, Bradley Hamilton. With regard to this action, the SEC’s complaint alleges that Alderson and Hamilton mislead clients and prospective clients about the benefits of pension transfers while concealing material conflicts of interest. Specifically, the material conflict includes the considerable remuneration for Alderson and Hamilton, personally.
Obligation to Disclose
“Investment advisers have an obligation to disclose direct and indirect financial incentives,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “deVere USA brushed aside this duty while advising retail investors about their retirement assets, and today’s settlement will result in a Fair Fund distribution to deVere USA’s retail clients who were deprived of important information.”
Without admitting or denying the SEC’s findings, deVere USA consents to the SEC’s order. The order indicates the firm violates the Investment Advisers Act of 1940, including the antifraud provisions. In the end, the SEC imposes remedies that include an $8,000,000 penalty and engaging an independent compliance consultant. The SEC’s complaint against Alderson and Hamilton alleges that they violated the Investment Advisers Act and seeks an injunction, disgorgement plus interest, and civil money penalties.