SEC orders three investment advisory firms to return money to investors

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The Securities and Exchange Commission (SEC) ordered three investment advisory firms to reimburse investors harmed by their inadequate disclosure practices.

According to the SEC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Eagle Strategies LLC, and Cozad Asset Management Inc. agreed to resolve their mistakes and to comply with its order.

Merrill Lynch, Eagle Strategies, and Cozad violated their fiduciary duties and failed to fairly and fully disclose material information related to their mutual fund share class selection practices and the fees received by affiliated brokers, the Commission stated.

Merill Lynch, Eagle Strategies, and Cozad self-reported their misconducts

The three investment advisory firms self-reported their possible securities laws violations as part of the SEC Enforcement Division’s Share Class Selection Disclosure (SCSD) Initiative.

Based on the SEC’s orders, Merrill Lynch, Eagle Strategies, and Cozad violated the Advisers Act. The law prohibits any investment adviser from engaging in any transaction, practice or course of business that operates as a fraud or deceit upon any client or prospective client.

The Commission ordered Merrill Lynch to pay a total of $325,376 in disgorgement and prejudgment interest to affected investors.

On the other hand, the SEC directed Eagle Strategies to pay a total of   $101,090.46 in disgorgement and prejudgment interest to affected investors.

Meanwhile, the Commission required Cozad to pay a total of $416,870.10 in disgorgement and prejudgment interest to affected investors.

It also required the three investment advisory firms to stop from committing or causing any violations and any future violations of the Advisers Act.

SEC is aggressive in pursuing disclosure failures

In a statement, Dabney O’Riordan, Co-Chief, Asset Management Unit of the Enforcement Division said the SCSD Initiative is “incredibly successful.”

She noted that the SCSD Initiative “led to the returns of almost $140 million to harmed investors” since its launch in 2018. It also “stopped wrongful conduct by investment advisory firms” and highlighted the importance of their obligations to provide full and fair disclosures to clients.

In addition, O’Riordan stated, “We continue to actively pursue disclosure failures that financially benefit the adviser to the detriment of the client.”