SEC Charges Credit Suisse and Former IA Representative With Breaches of Fiduciary
Credit Suisse and former adviser Sanford Michael Katz settled SEC charges by paying nearly $8 million for breaching fiduciary duty by steering clients into costly Class A mutual fund shares instead of eligible institutional shares, generating $3.2M in avoidable 12b-1 fees with $2.5M from Katz’s clients, while concealing the conflict of interest.
Credit Suisse and former investment adviser representative Sanford Michael Katz agreed to pay $3.2 million in disgorgement, $577,678 in prejudgment interest, and $4.125 million in penalties—totaling nearly $8 million—to settle SEC charges of breaching fiduciary duty. Between 2009 and 2014, they improperly directed clients into more expensive Class A mutual fund shares, generating $3.2 million in avoidable 12b-1 fees, of which $2.5 million came from Katz’s clients, with Katz receiving a share of the proceeds. The SEC found violations of Sections 206(2), 206(4), and 207 of the Investment Advisers Act and Rule 206(4)-7 due to inadequate compliance policies, and both parties consented to censures and cease-and-desist orders without admitting or denying guilt.
Credit Suisse Securities (USA) LLC and former investment adviser representative Sanford Michael Katz agreed to pay nearly $8 million to settle SEC charges that they breached their fiduciary duties by steering clients into more expensive Class A mutual fund shares instead of eligible, lower-cost institutional shares. Between 2009 and 2014, this misconduct generated $3.2 million in avoidable 12b-1 fees, with $2.5 million of that amount directly attributable to Katz’s advisory clients, and Katz received a portion of the fees paid by the mutual funds to Credit Suisse, creating an undisclosed financial conflict of interest. The SEC found that Credit Suisse failed to implement adequate policies and procedures to prevent these violations, violating Sections 206(2), 206(4), and 207 of the Investment Advisers Act and Rule 206(4)-7. Without admitting or denying the allegations, Credit Suisse and Katz consented to pay $3.224 million in disgorgement, $577,678 in prejudgment interest, and $4.125 million in civil penalties. A Fair Fund will be established to distribute the settlement proceeds to affected clients. Both parties also accepted censures and cease-and-desist orders prohibiting future violations. The SEC’s investigation was led by Paul H. Pashkoff, Geoffrey E. Gettinger, and John Farinacci, under the supervision of Ivonia K. Slade.
Extracted insights
- $8.00M $8 million $1M–$10M
- $3.22M $3,224,483 $1M–$10M
- $3.20M $3.2 million $1M–$10M
- $2.50M $2.5 million $1M–$10M
- $578K $577,678 $100K–$1M
- company a fair fund
- person credit suisse
- person ivonia k. slade
- agency Securities and Exchange Commission
- person their fiduciary duties
- agency the sec’s investigation
- The SEC Charges Credit Suisse and Former IA Representative
- Credit Suisse Agreed to Pay Almost $8 million to settle charges
- Credit Suisse and Sanford Michael Katz Breached Their fiduciary duties
- Credit Suisse and Sanford Michael Katz Failed to Adequately Disclose The conflict of interest created by such investments
- Credit Suisse Collected Approximately $3.2 million in avoidable 12b-1 fees from 2009 to 2014
- Credit Suisse Failed to Implement Policies and procedures to prevent these fiduciary breaches
- Credit Suisse and Katz Violated Section 206(2) of the Investment Advisers Act of 1940
- Credit Suisse Violated Sections 206(4) and 207 of the Investment Advisers Act and Rule 206(4)-7
- Credit Suisse and Katz Will Collectively Pay Disgorgement of $3,224,483, prejudgment interest of $577,678, and penalties totaling $4.125 million
- A Fair Fund Will Be Established To compensate affected clients with the money collected in the settlement
- Credit Suisse and Katz Consented to Censures and the entry of cease-and-desist orders from committing or causing further violations of these provisions
- The SEC’s Investigation Was Conducted By Paul H. Pashkoff, Geoffrey E. Gettinger, and John Farinacci
- The Case Was Supervised By Ivonia K. Slade
ADMINISTRATIVE PROCEEDING File No. 3-17899; 3-17900 SEC Charges Credit Suisse and Former IA Representative With Breaches of Fiduciary Duty April 4, 2017 – The Securities and Exchange Commission today announced that Credit Suisse Securities (USA) LLC and one of its former investment adviser representatives have agreed to pay almost $8 million to settle charges that they improperly invested clients in more expensive “Class A” shares of mutual funds rather than less expensive “institutional” shares for which they were eligible. The SEC’s orders find that Credit Suisse and Sanford Michael Katz breached their fiduciary duties and failed to adequately disclose the conflict of interest created by such investments as they enriched themselves at their clients’ expense. Class A shares are generally more expensive than institutional shares of the same fund because they charge investors marketing and distribution expenses known as 12b-1 fees that are paid out of the assets of the mutual fund. In this case, the 12b-1 fees were paid by the mutual funds to Credit Suisse, which then shared a portion of those fees with Katz. According to the SEC’s orders, Credit Suisse collected approximately $3.2 million in avoidable 12b-1 fees from 2009 to 2014, and approximately $2.5 million of that amount was generated from Katz’s advisory clients. Credit Suisse also failed to implement policies and procedures to prevent these fiduciary breaches. The SEC’s orders find that Credit Suisse and Katz violated Section 206(2) of the Investment Advisers Act of 1940, and Credit Suisse violated Sections 206(4) and 207 of the Investment Advisers Act and Rule 206(4)-7. Without admitting or denying the SEC’s findings, Credit Suisse and Katz will collectively pay disgorgement of $3,224,483, prejudgment interest of $577,678, and penalties totaling $4.125 million. A Fair Fund will be established to compensate affected clients with the money collected in the settlement. Credit Suisse and Katz also consented to censures and the entry of cease-and- desist orders from committing or causing further violations of these provisions. The SEC’s investigation was conducted by Paul H. Pashkoff, Geoffrey E. Gettinger, and John Farinacci, and the case was supervised by Ivonia K. Slade. See also: SEC Order – Credit Suisse SEC Order – Sanford Michael Katz
ADMINISTRATIVE PROCEEDING File No. 3-17899; 3-17900 SEC Charges Credit Suisse and Former IA Representative With Breaches of Fiduciary Duty April 4, 2017 – The Securities and Exchange Commission today announced that Credit Suisse Securities (USA) LLC and one of its former investment adviser representatives have agreed to pay almost $8 million to settle charges that they improperly invested clients in more expensive “Class A” shares of mutual funds rather than less expensive “institutional” shares for which they were eligible. The SEC’s orders find that Credit Suisse and Sanford Michael Katz breached their fiduciary duties and failed to adequately disclose the conflict of interest created by such investments as they enriched themselves at their clients’ expense. Class A shares are generally more expensive than institutional shares of the same fund because they charge investors marketing and distribution expenses known as 12b-1 fees that are paid out of the assets of the mutual fund. In this case, the 12b-1 fees were paid by the mutual funds to Credit Suisse, which then shared a portion of those fees with Katz. According to the SEC’s orders, Credit Suisse collected approximately $3.2 million in avoidable 12b-1 fees from 2009 to 2014, and approximately $2.5 million of that amount was generated from Katz’s advisory clients. Credit Suisse also failed to implement policies and procedures to prevent these fiduciary breaches. The SEC’s orders find that Credit Suisse and Katz violated Section 206(2) of the Investment Advisers Act of 1940, and Credit Suisse violated Sections 206(4) and 207 of the Investment Advisers Act and Rule 206(4)-7. Without admitting or denying the SEC’s findings, Credit Suisse and Katz will collectively pay disgorgement of $3,224,483, prejudgment interest of $577,678, and penalties totaling $4.125 million. A Fair Fund will be established to compensate affected clients with the money collected in the settlement. Credit Suisse and Katz also consented to censures and the entry of cease-and- desist orders from committing or causing further violations of these provisions. The SEC’s investigation was conducted by Paul H. Pashkoff, Geoffrey E. Gettinger, and John Farinacci, and the case was supervised by Ivonia K. Slade. See also: SEC Order – Credit Suisse SEC Order – Sanford Michael Katz https://www.sec.gov/litigation/admin/2017/34-80373.pdf https://www.sec.gov/litigation/admin/2017/ia-4679.pdf