Cetera Advisors Accused of Defrauding Investors of $10M

The US Securities and Exchange Commission (SEC) has filed civil charges accusing Cetera Advisors of defrauding its retail clients through $10M in unnecessary commissions and fees. The regulator is accusing the registered investment adviser (RIA) of selling these customers costlier share classes even though they qualified to invest in less expensive share classes of the same funds. The clients paid the additional compensation to the firm during the time that they held the more costly investments.

According to the Commission’s complaint, from at least 9/2016 through 12/2016, these Cetera customers were invested and held in mutual fund share classes that charged them 12b-1 fees that were recurring instead of shares that didn’t charge these fees. The SEC said that aside from the fees, which was compensation paid to Cetera, the share classes were identical.

The regulator also claims that Cetera took part in a program with its clearing firm in which the latter would share service fees and revenues it was paid from certain mutual funds with the RIA. Hence, this was incentive for Cetera to sell these mutual funds  instead of other investments to clients. Cetera purportedly received $1.7M as a result of this deal.

The investment advisory firm is also accused by the SEC of instructing its clearing broker-dealer to mark-up some of the fees its advisory clients were ordered to pay. In some cases, this mark-up was up to 300%. Cetera would then indirectly receive these payments from the clients, who had paid them to the clearing brokerage firm. These payments to the RIA totaled around $2M.

The SEC is contending that Cetera did not adequately disclose to its clients that they were paying these excess fees or that it  had conflicts of interest related to these payments. Now, the regulator wants Cetera to pay disgorgement of ill-gotten gains, prejudgment interest, and a penalty.

Excessive Mutual Fund Fees
Unfortunately, RIAs selling costlier mutual fund share classes to clients who are eligible for less expensive yet comparable share classes is not an uncommon practice. Just last month, Commonwealth Financial Network was charged by the SEC with breach of fiduciary for not telling mutual clients that it made more than $100M from a revenue-sharing deal with a brokerage firm. The arrangement involved selling certain mutual fund share classes over others.

In March, the SEC announced that 79 investment advisers that had charged excess 12b-1 fees would be giving back over $125M to clients, most of them retail investors. The repayments were from RIAs who self-reported violations related to the sale of mutual fund share classes to customers, including the selling of more expensive share classes when less expensive ones were available and could have done just as well for their clients.

Investment Adviser Fraud Lawyers
If you were one of the Cetera clients that invested in mutual funds and you suspect that you were sold costlier share classes than you should have been, you may have grounds for a mutual fund fraud claim against the registered investment adviser. Shepherd Smith Edward and Kantas, LLP (SSEK Law Firm) represents investors that have suffered unnecessary losses due to excessive commissions and unnecessary fees that they should never have paid. Contact our investment adviser fraud lawyers today.