Registered investment advisor (RIA) Aventura Capital Management is in the crosshairs of the Securities and Exchange Commission (SEC) for conflict of interest related to its mutual fund share class selection and 12b-1 fees.
Haselkorn & Thibaut has opened an investigation into Aventura Capital Managment. Please call us today at 1-800-856-3352 or use our contact form; one of our attorneys will call you.
According to details available from a document of administrative proceedings, the SEC has made the following accusation against the Fort Lauderdale, Florida- based RIA:
- It failed to disclose the conflict of interest that arose on account of its practices of a selection of share classes to its clients. The company allegedly chose share classes from which Aventura Securities, its affiliated broker-dealer, earned fees in preference to the lower-cost share classes clients were in a position to access.
- Aventura Capital allegedly also failed to disclose to its clients its choice of higher-cost share classes of money market funds used for cash sweeps. Once again, its broker-dealer earned commissions from these share classes.
- Engaging in transactions with its broker-dealer should be either the subject of disclosure to clients or that of obtention of their consent, neither of which was done by Aventura, as revealed by the regulator.
- There was no evidence of Aventura having adopted reasonable and adequate preventive measures to avoid the recurrence of such violations.
What Aventura has agreed to, without admittance to or denial of findings:
- A censure
- A cease-and-desist order
- Payment of $623,324 in disgorgement
- Payment of $90,432 in prejudgment interest
- Payment of $225K as a civil penalty
Violations of share class selection of mutual funds have been on the radar of the SEC for several years. Earlier this year, they had even targeted an individual investment advisor in connection with his firm’s sales loads commissions and 12b-1 fees.
A self-reporting amnesty program was offered in 2018 relating to conflict of interest and revenue-sharing disclosures. According to the SEC, the program had triggered the return of $140 million to investors before it ended in April 2020.
Referring to the program, the SEC remarked that despite the criteria being satisfied, Aventura had desisted from participating.
It is no consolation that Aventura is not the only one that desisted. The SEC has reportedly reached several settlements of large sums over similar issues; violation of revenue sharing and share class selection norms.
SEC Enforcement
The Enforcement Division of the Securities and Exchange Commission (SEC) investigates alleged violations of the SEC’s rules. This division does not have the power to file criminal charges but can recommend criminal charges to state and federal prosecutors. After reviewing an allegation, the SEC may initiate an informal private investigation or issue a formal investigation order. It will then determine whether the case should go to federal court. Common violations of SEC rules include insider trading, misrepresentation, and deliberate omissions in company filings. The SEC can also enforce rules regarding the registration and sale of securities and breaches of broker/dealer fiduciary duties.
The new head of the SEC is Gary Gensler, who was previously the head of the Commodity Futures Trading Commission (CFTC). Gensler has a background in finance and technology and has applied this background in a digital securities environment. He said his agency would prioritize enforcement cases involving the most significant risks to investors and seek to curtail abusive practices in new business models.
Enforcement of Securities and Exchange Commission rules is essential to protect American investors. When these rules are not implemented correctly, they may cause harm to investors and independent financial services firms. Moreover, drive-by regulation creates uncertainty for firms and increases costs for investors. This is why it is important to understand the role of enforcement and compliance before making any investment decisions.
A good guideline for compliance with Securities and Exchange Commission rules is to familiarize yourself with the Securities and Exchange Commission Manual (SEC Manual). The manual is an authoritative work that analyzes all applicable statutes, hundreds of case studies, and thousands of SEC administrative decisions and letters. In addition, the SEC’s website offers helpful information.
An enforcement order can require a person to stop violating the rules or take steps to comply. The order may include specific terms and conditions and a deadline. Sometimes it requires permanent compliance.
