SEC Charges Cetera with Defrauding Advisory Clients

The Commission says the broker/dealer charged clients 12b-1 fees when they qualified for lower-cost shares.

The Securities and Exchange Commission (SEC) has charged Cetera Advisors, LLC with defrauding its retail advisory clients by failing to disclose conflicts of interest related to its receipt of more than $10 million in undisclosed compensation.

According to the SEC’s complaint, filed in the U.S. District Court for the District of Colorado, from at least September 2012 through December 2016, Cetera invested and held clients in mutual fund share classes that charged 12b-1 fees when it knew that these clients were eligible for lower-cost shares of the same funds without the 12b-1 fees.

The SEC further charges that Cetera participated in a program offered by its clearing broker whereby the broker shared with Cetera revenues and service fees it received from certain mutual funds. As a result, Cetera had an incentive to favor these mutual funds over other investments when advising clients. The SEC’s complaint further alleges that Cetera directed its clearing broker to mark up certain fees charged to Cetera’s advisory clients, which Cetera received indirectly.

The SEC says that these practices generated more than $10 million in undisclosed compensation for Cetera. The SEC says Cetera violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a penalty.

Cetera declined to comment on the charges, saying its company policy is to not comment on legal matters.