In re OPPENHEIMER & CO. INC.

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 5137 / March 11, 2019 
 
ADMINISTRATIVE PROCEEDING 
File No. 3- 19040 
 
 
In the Matter of 
 
OPPENHEIMER & CO. INC. 
AND OPPENHEIMER ASSET 
MANAGEMENT INC.  
 
Respondents. 
 
 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 203(e) AND 
203(k) OF THE INVESTMENT ADVISERS 
ACT OF 1940, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS AND A 
CEASE-AND-DESIST ORDER  
   
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 
(“Advisers Act”) against Oppenheimer & Co. Inc. (“Opco”) and its affiliate Oppenheimer Asset 
Management Inc. (“OAM”) (together, “Oppenheimer” or “Respondents”).   
II. 
 In anticipation of the institution of these proceedings, Respondents have submitted Offers 
of Settlement (the “Offers”), which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
proceedings, which are admitted, Respondents consent to the entry of this Order Instituting 
Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e) and 203(k) of the 
Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 
Cease-and-Desist Order (“Order”), as set forth below. 
 

 
 
 
2 
III. 
 On the basis of this Order and Respondents’ Offers, the Commission finds
1
 that  
Summary 
1. These proceedings arise out of breaches of fiduciary duty and inadequate disclosures 
by affiliated registered investment advisers Opco and OAM in connection with mutual fund share 
class selection practices and the fees Respondents and their associated persons received pursuant to 
Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”).  At times during the period 
January 1, 2014 to August 15, 2018 (the “Relevant Period”), Respondents purchased, 
recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead 
of lower-cost share classes of the same funds for which the clients were eligible.  Respondents and 
their associated persons received 12b-1 fees in connection with these investments.  Respondents 
failed to disclose in their Form ADV or otherwise the conflicts of interest related to (a) their receipt 
of 12b-1 fees, and/or (b) their selection of mutual fund share classes that pay such fees.  During the 
Relevant Period, Respondents and their associated persons received 12b-1 fees for advising clients 
to invest in or hold such mutual fund share classes.   
2. Respondents self-reported to the Commission the violations discussed in this Order 
pursuant to the Division of Enforcement’s (the “Division”) Share Class Selection Disclosure 
Initiative (“SCSD Initiative”).
2
  Accordingly, this Order and Respondents’ Offers are based on the 
information self-reported by Respondents. 
Respondents 
3. Respondent Opco, incorporated in New York and headquartered in New York, NY, 
has been dually registered with the Commission as an investment adviser and broker-dealer since 
1955.  In its Form ADV filed March 22, 2018, Opco reported regulatory assets under management 
of approximately $15 billion.  Respondent OAM is Opco’s affiliate and has been registered with 
the Commission as an investment adviser since 1988.  In its Form ADV filed March 23, 2018, 
OAM reported regulatory assets under management of approximately $14 billion.   
 
                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding.  
2
  See Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Share Class Selection Disclosure Initiative, 
https://www.sec.gov/enforce/announcement/scsd-initiative (last modified Feb. 12, 2018). 

 
 
 
3 
Mutual Fund Share Class Selection 
4. Mutual funds typically offer investors different types of shares or “share classes.” 
Each share class represents an interest in the same portfolio of securities with the same investment 
objective.  The primary difference among the share classes is the fee structure. 
5. For example, some mutual fund share classes charge 12b-1 fees to cover fund 
distribution and sometimes shareholder service expenses.  These recurring fees, which are included 
in a mutual fund’s total annual fund operating expenses, vary by share class, but typically range 
from 25 to 100 basis points.  They are deducted from the mutual fund’s assets on an ongoing basis 
and paid to the fund’s distributor or principal underwriter, which generally remits the 12b-1 fees to 
the broker-dealer that distributed or sold the shares.   
6. Many mutual funds also offer share classes that do not charge 12b-1 fees (e.g., 
“Institutional Class” or “Class I” shares (collectively, “Class I shares”)).
3
  An investor who holds 
Class I shares of a mutual fund will usually pay lower total annual fund operating expenses over 
time – and thus will almost always earn higher returns – than one who holds a share class of the 
same fund that charges 12b-1 fees.  Therefore, if a mutual fund offers a Class I share, and an 
investor is eligible to own it, it is often, though not always, better for the investor to purchase or 
hold the Class I share.  
7. During the Relevant Period, Respondents advised clients to purchase or hold
4
 
mutual fund share classes that charged 12b-1 fees when lower-cost share classes of those same 
funds were available to those clients.  Respondents or Respondents’ associated persons received 
12b-1 fees that they would not have collected had those clients been invested in the available 
lower-cost share classes. 
Inadequate Disclosures Concerning Mutual Fund Investments  
8. As investment advisers, Respondents were obligated to disclose all material facts to 
their clients, including any conflicts of interest between themselves and/or their associated persons 
and their clients that could affect the advisory relationship and how those conflicts could impact 
advice the Respondents provided to clients.  Relevant to the issue herein, Respondents were 
required to give clients sufficient information so that they could understand the conflicts of interest 
of the Respondents and their associated persons concerning their advice about investing in the 
different classes of mutual funds and have a basis on which they could consent to or reject such 
conflicted transactions.  
                                                 
3
  Share classes that do not charge 12b-1 fees also go by a variety of other names in the mutual fund industry, 
such as “Class F2,” “Class Y” and “Class Z” shares.  As used in this Order, the term “Class I shares” refers 
generically to share classes that do not charge 12b-1 fees.   
4
  In many cases, mutual funds permit certain advisory clients who hold shares in classes charging 12b-1 fees 
to convert those shares to Class I shares without cost or tax consequences to the client.  

 
 
 
4 
9.  At times during the Relevant Period, Respondents did not disclose adequately to its 
clients either in its Forms ADV or otherwise their and their associated persons’ conflicts of interest 
related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay 
such fees.  
Violations 
10. As a result of the conduct described above, Respondents willfully
5
 violated Section 
206(2) of the Advisers Act, which makes it unlawful for any investment adviser, directly or 
indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or 
deceit upon any client or prospective client.”  Scienter is not required to establish a violation of 
Section 206(2), but rather may rest on a finding of negligence.  SEC v. Steadman, 967 F.2d 636, 
643 n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180,194-95 
(1963)). 
11. As a result of the conduct described above, Respondents willfully violated Section 
207 of the Advisers Act, which makes it “unlawful for any person willfully to make any untrue 
statement of a material fact in any registration application or report filed with the Commission . . . 
or willfully to omit to state in any such application or report any material fact which is required to 
be stated therein.”   
Self-Reporting 
12. In determining to accept Respondents’ offer, the Commission considered that 
Respondents self-reported their conduct to the Commission pursuant to the SCSD Initiative.  In 
addition, the Commission acknowledges that Respondents have certified to the Commission staff 
that they have completed the undertakings identified in paragraphs 13.a, 13.b, and 13.c below. 
Undertakings 
13. Respondents have undertaken to: 
a. Within 30 days of the entry of this Order, review and correct as necessary 
all relevant disclosure documents concerning mutual fund share class selection and 
12b-1 fees. 
b. Within 30 days of the entry of this Order, evaluate whether existing clients 
should be moved to a lower-cost share class and move clients as necessary. 
                                                 
5
  A willful violation of the securities laws means merely “‘that the person charged with the duty knows what 
he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 
(D.C. Cir. 1949)).  There is no requirement that the actor “‘also be aware that he is violating one of the Rules or 
Acts.’”  Id. (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)). 

 
 
 
5 
c. Within 30 days of the entry of this Order, evaluate, update (if necessary), 
and review for the effectiveness of their implementation, Respondents’ policies and 
procedures so that they are reasonably designed to prevent violations of the 
Advisers Act in connection with disclosures regarding mutual fund share class 
selection. 
d. Within 30 days of the entry of this Order, notify affected investors (i.e., 
those former and current clients who, during the Relevant Period of inadequate 
disclosure, purchased or held 12b-1 fee paying share class mutual funds when a 
lower-cost share class of the same fund was available to the client) (hereinafter, 
“affected investors”) of the settlement terms of this Order in a clear and 
conspicuous fashion. 
e. Within 40 days of the entry of this Order, certify, in writing, compliance 
with the undertaking(s) ordered pursuant to Section IV.E., below.  The certification 
shall identify the undertaking(s), provide written evidence of compliance in the 
form of a narrative, and be supported by exhibits sufficient to demonstrate 
compliance.  The certification and supporting material shall be submitted to 
Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, MA 
02110, or such other address as the Commission staff may provide, with a copy to 
the Office of Chief Counsel of the Division of Enforcement, Securities and 
Exchange Commission, 100 F. Street, NE, Washington, DC 20549.   
f. For good cause shown, the Commission staff may extend any of the 
procedural dates relating to these undertakings.  Deadlines for procedural dates 
shall be counted in calendar days, except that if the last day falls on a weekend or 
federal holiday, the next business day shall be considered the last day. 
IV. 
 In view of the foregoing, the Commission deems it appropriate, and in the public interest to 
impose the sanctions agreed to in Respondents’ Offer. 
 Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, it is hereby 
ORDERED that: 
 A. Respondents shall cease and desist from committing or causing any violations and 
any future violations of Sections 206(2) and 207 of the Advisers Act. 
B. Respondents are censured.   
C. Respondents, jointly and severally, shall pay disgorgement and prejudgment 
interest to affected investors, totaling $3,528,377 as follows: 

 
 
 
6 
(i.) Respondents, jointly and severally, shall pay disgorgement of $3,169,123 
and prejudgment interest of $359,254, consistent with the provisions of this 
Subsection C and subject to the offset provisions of Subsection C.(vii) below.    
(ii.) Within ten (10) days of the entry of this Order, Respondents shall deposit 
the full amount of the disgorgement and prejudgment interest (the “Distribution 
Fund”) into an escrow account at a financial institution not unacceptable to the 
Commission staff and Respondents shall provide evidence of such deposit in a form 
acceptable to the Commission staff.  If timely deposit is not made, additional 
interest shall accrue pursuant to SEC Rule of Practice 600 [17 C.F.R. § 201.600]. 
(iii.) Respondents shall be responsible for administering the Distribution Fund 
and may hire a professional acceptable to the Commission, at its own cost, to assist 
it in the administration of the distribution.  The costs and expenses of administering 
the Distribution Fund, including any such professional services, shall be borne by 
Respondents and shall not be paid out of the Distribution Fund.   
(iv.) Respondents shall distribute the amount of the Distribution Fund to each 
affected investor an amount representing: (a) the 12b-1 fees attributable to the 
affected investor during the Relevant Period; and (b) reasonable interest paid on 
such fees,
6
 pursuant to a disbursement calculation (the “Calculation”) that will be 
submitted to, reviewed, and approved by the Commission staff in accordance with 
this Subsection C.  The Calculation shall be subject to a de minimis threshold.  No 
portion of the Distribution Fund shall be paid to any affected investor account in 
which Respondents or their past or present officers or directors have a financial 
interest. 
(v.) Respondents shall, within ninety (90) days of the entry of this Order, submit 
a Calculation to the Commission staff for review and approval.  Respondents shall 
also provide to the Commission staff such additional information and supporting 
documentation as the Commission staff may request for the purpose of its review.  
In the event of one or more objections by the Commission staff to Respondents’ 
proposed Calculation or any of its information or supporting documentation, 
Respondents shall submit a revised Calculation for the review and approval of the 
Commission staff or additional information or supporting documentation within ten 
(10) days of the date that Respondents are notified of the objection.  The revised 
Calculation shall be subject to all of the provisions of this Subsection C.   
(vi.) Respondents shall, within thirty (30) days of the written approval of the 
Calculation by the Commission staff, submit a payment file (the “Payment File”) for 
                                                 
6
  Reasonable interest will be calculated at the Short-Term Applicable Federal Rate plus three percent (3%), 
compounded quarterly from the end of the year when Respondents or Respondents’ associated persons received the 
12b-1 fees to the date the Respondent completed its self-report pursuant to the SCSD Initiative. 
      

 
 
 
7 
review and acceptance by the Commission staff demonstrating the application of the 
methodology to each affected investor.  The Payment File should identify, at a 
minimum: (1) the name of each affected investor, (2) the exact amount of the 
payment to be made from the Distribution Fund to each affected investor, and (3) the 
application of a de minimis threshold. 
 
(vii.) Respondents shall disburse all amounts payable to affected investors within 
90 days of the date the Commission staff accepts the Payment File unless such time 
period is extended as provided in Paragraph (x.) of this Subsection C.  The amount 
Respondents pay to affected investors on or after February 12, 2018, up until the 
lapse of 90 days following the date of staff’s acceptance of the Payment File for 
12b-1 fees the Respondents received during the Relevant Period, will dollar for 
dollar offset the disgorgement payable to the Commission pursuant to this 
Subsection C, subject to approval by Commission staff.  If, after Respondents’ 
reasonable efforts to distribute the Distribution Fund pursuant to the approved 
Payment File, Respondents are unable to distribute any portion of the Distribution 
Fund for good cause, including factors beyond Respondents’ control, Respondents 
shall transfer any such undistributed funds to the Commission for transmittal to the 
United States Treasury in accordance with Section 21F(g)(3) of the Securities 
Exchange Act of 1934 when the distribution of the funds is complete and before the 
final accounting provided for in Paragraph (ix.) below is submitted to Commission 
staff.  Any such payment shall be made in accordance with Paragraph (xi.) below.  
 
(viii.) A Distribution Fund is a Qualified Settlement Fund (“QSF”) under Section 
468B(g) of the Internal Revenue Code (“IRC”), 26 U.S.C. §§1.468B.1-1.468B.5.   
Respondents agree to be responsible for all tax compliance responsibilities 
associated with distribution of the Distribution Fund, including but not limited to 
tax obligations resulting from the Distribution Fund’s status as a QSF and the 
Foreign Account Tax Compliance Act (“FATCA”), and may retain any 
professional services necessary. The costs and expenses of any such professional 
services shall be borne by Respondents and shall not be paid by the Distribution 
Fund.  
(ix.) Within 150 days after Respondents complete the distribution of all amounts 
payable to the affected investors, Respondents shall submit to the Commission staff 
a final accounting and certification of the disposition of the Distribution Fund for 
Commission approval.  The final accounting shall be in a format to be provided by 
the Commission staff. The final accounting and certification shall include: (1) the 
amount paid to each affected investor, with reasonable interest; (2) the date of each 
payment; (3) the check number or other identifier of money transferred to each 
affected investor; (4) the amount of any returned payment and the date received; (5) 
a description of any effort to locate an affected investor whose payment was 
returned or to whom payment was not made for any reason; (6) the total amount, if 
any, to be forwarded to the Commission for transfer to the United States Treasury; 

 
 
 
8 
and (7) an affirmation that Respondents have made payments from the Distribution 
Fund to affected investors in accordance with the Payment File approved by the 
Commission staff.  Respondents shall submit the final accounting and certification, 
together with proof and supporting documentation of such payment in a form 
acceptable to Commission staff, under a cover letter that identifies Opco and OAM 
as the Respondents in these proceedings and the file number of these proceedings to 
Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, MA 
02110, or such other address as the Commission staff may provide.  Any and all 
supporting documentation for the accounting and certification shall be provided to 
the Commission staff upon request, and Respondents shall cooperate with any 
additional requests by the Commission staff in connection with the accounting and 
certification. 
  
(x.) The Commission staff may extend any of the procedural dates set forth in 
Paragraphs (ii.) through (ix.) of this Subsection C for good cause shown. Deadlines 
for dates relating to the Distribution Fund shall be counted in calendar days, except 
if the last day falls on a weekend or federal holiday, the next business day shall be 
considered the last day.  
(xi.) Respondents’ transfer of any undistributed funds to the Commission for 
transmittal to the United States Treasury must be made in one of the following 
ways:   
(a) Respondents may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(b) Respondents may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(c) Respondents may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter 
identifying Respondents as Respondents in these proceedings, and the file number 
of these proceedings; a copy of the cover letter and check or money order must be 
sent to Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, 
MA 02110, or such other address as the Commission staff may provide. 

 
 
 
9 
D.   Respondents acknowledge that the Commission is not imposing a civil penalty 
based upon Respondents’ self-report in the SCSD Initiative.  If at any time following the entry of 
this Order, the Division obtains information indicating that Respondents knowingly provided 
materially false or misleading information or materials to the Commission, or in a related 
proceeding, the Division may, at its sole discretion and with prior notice to the Respondents, 
petition the Commission to reopen this matter and seek an order directing that the Respondents pay 
a civil money penalty.  Respondents may contest by way of defense in any resulting administrative 
proceeding whether it knowingly provided materially false or misleading information, but may not: 
(1) contest the findings in this Order; or (2) assert any defense to liability or remedy, including, but 
not limited to, any statute of limitations defense. 
 E. Respondents shall comply with the undertakings enumerated in Section III, 
paragraphs 13.d and 13.e above. 
 By the Commission. 
 
 
 
       Vanessa A. Countryman 
       Acting Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 5137 / March 11, 2019 

 

ADMINISTRATIVE PROCEEDING 

File No. 3- 19040 

 

 

In the Matter of 

 

OPPENHEIMER & CO. INC. 

AND OPPENHEIMER ASSET 

MANAGEMENT INC.  

 

Respondents. 

 

 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 203(e) AND 

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND A 

CEASE-AND-DESIST ORDER  

   

 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 

(“Advisers Act”) against Oppenheimer & Co. Inc. (“Opco”) and its affiliate Oppenheimer Asset 

Management Inc. (“OAM”) (together, “Oppenheimer” or “Respondents”).   

II. 

 In anticipation of the institution of these proceedings, Respondents have submitted Offers 

of Settlement (the “Offers”), which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, Respondents consent to the entry of this Order Instituting 

Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 203(e) and 203(k) of the 

Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist Order (“Order”), as set forth below. 

 



 

 

 

2 

III. 

 On the basis of this Order and Respondents’ Offers, the Commission finds1 that  

Summary 

1. These proceedings arise out of breaches of fiduciary duty and inadequate disclosures 

by affiliated registered investment advisers Opco and OAM in connection with mutual fund share 

class selection practices and the fees Respondents and their associated persons received pursuant to 

Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”).  At times during the period 

January 1, 2014 to August 15, 2018 (the “Relevant Period”), Respondents purchased, 

recommended, or held for advisory clients mutual fund share classes that charged 12b-1 fees instead 

of lower-cost share classes of the same funds for which the clients were eligible.  Respondents and 

their associated persons received 12b-1 fees in connection with these investments.  Respondents 

failed to disclose in their Form ADV or otherwise the conflicts of interest related to (a) their receipt 

of 12b-1 fees, and/or (b) their selection of mutual fund share classes that pay such fees.  During the 

Relevant Period, Respondents and their associated persons received 12b-1 fees for advising clients 

to invest in or hold such mutual fund share classes.   

2. Respondents self-reported to the Commission the violations discussed in this Order 

pursuant to the Division of Enforcement’s (the “Division”) Share Class Selection Disclosure 

Initiative (“SCSD Initiative”).2  Accordingly, this Order and Respondents’ Offers are based on the 

information self-reported by Respondents. 

Respondents 

3. Respondent Opco, incorporated in New York and headquartered in New York, NY, 

has been dually registered with the Commission as an investment adviser and broker-dealer since 

1955.  In its Form ADV filed March 22, 2018, Opco reported regulatory assets under management 

of approximately $15 billion.  Respondent OAM is Opco’s affiliate and has been registered with 

the Commission as an investment adviser since 1988.  In its Form ADV filed March 23, 2018, 

OAM reported regulatory assets under management of approximately $14 billion.   

 

                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding.  

2
  See Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Share Class Selection Disclosure Initiative, 

https://www.sec.gov/enforce/announcement/scsd-initiative (last modified Feb. 12, 2018). 



 

 

 

3 

Mutual Fund Share Class Selection 

4. Mutual funds typically offer investors different types of shares or “share classes.” 

Each share class represents an interest in the same portfolio of securities with the same investment 

objective.  The primary difference among the share classes is the fee structure. 

5. For example, some mutual fund share classes charge 12b-1 fees to cover fund 

distribution and sometimes shareholder service expenses.  These recurring fees, which are included 

in a mutual fund’s total annual fund operating expenses, vary by share class, but typically range 

from 25 to 100 basis points.  They are deducted from the mutual fund’s assets on an ongoing basis 

and paid to the fund’s distributor or principal underwriter, which generally remits the 12b-1 fees to 

the broker-dealer that distributed or sold the shares.   

6. Many mutual funds also offer share classes that do not charge 12b-1 fees (e.g., 

“Institutional Class” or “Class I” shares (collectively, “Class I shares”)).3  An investor who holds 

Class I shares of a mutual fund will usually pay lower total annual fund operating expenses over 

time – and thus will almost always earn higher returns – than one who holds a share class of the 

same fund that charges 12b-1 fees.  Therefore, if a mutual fund offers a Class I share, and an 

investor is eligible to own it, it is often, though not always, better for the investor to purchase or 

hold the Class I share.  

7. During the Relevant Period, Respondents advised clients to purchase or hold4 

mutual fund share classes that charged 12b-1 fees when lower-cost share classes of those same 

funds were available to those clients.  Respondents or Respondents’ associated persons received 

12b-1 fees that they would not have collected had those clients been invested in the available 

lower-cost share classes. 

Inadequate Disclosures Concerning Mutual Fund Investments  

8. As investment advisers, Respondents were obligated to disclose all material facts to 

their clients, including any conflicts of interest between themselves and/or their associated persons 

and their clients that could affect the advisory relationship and how those conflicts could impact 

advice the Respondents provided to clients.  Relevant to the issue herein, Respondents were 

required to give clients sufficient information so that they could understand the conflicts of interest 

of the Respondents and their associated persons concerning their advice about investing in the 

different classes of mutual funds and have a basis on which they could consent to or reject such 

conflicted transactions.  

                                                 
3
  Share classes that do not charge 12b-1 fees also go by a variety of other names in the mutual fund industry, 

such as “Class F2,” “Class Y” and “Class Z” shares.  As used in this Order, the term “Class I shares” refers 

generically to share classes that do not charge 12b-1 fees.   

4
  In many cases, mutual funds permit certain advisory clients who hold shares in classes charging 12b-1 fees 

to convert those shares to Class I shares without cost or tax consequences to the client.  



 

 

 

4 

9.  At times during the Relevant Period, Respondents did not disclose adequately to its 

clients either in its Forms ADV or otherwise their and their associated persons’ conflicts of interest 

related to (a) its receipt of 12b-1 fees, and/or (b) its selection of mutual fund share classes that pay 

such fees.  

Violations 

10. As a result of the conduct described above, Respondents willfully5 violated Section 

206(2) of the Advisers Act, which makes it unlawful for any investment adviser, directly or 

indirectly, to “engage in any transaction, practice or course of business which operates as a fraud or 

deceit upon any client or prospective client.”  Scienter is not required to establish a violation of 

Section 206(2), but rather may rest on a finding of negligence.  SEC v. Steadman, 967 F.2d 636, 

643 n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180,194-95 

(1963)). 

11. As a result of the conduct described above, Respondents willfully violated Section 

207 of the Advisers Act, which makes it “unlawful for any person willfully to make any untrue 

statement of a material fact in any registration application or report filed with the Commission . . . 

or willfully to omit to state in any such application or report any material fact which is required to 

be stated therein.”   

Self-Reporting 

12. In determining to accept Respondents’ offer, the Commission considered that 

Respondents self-reported their conduct to the Commission pursuant to the SCSD Initiative.  In 

addition, the Commission acknowledges that Respondents have certified to the Commission staff 

that they have completed the undertakings identified in paragraphs 13.a, 13.b, and 13.c below. 

Undertakings 

13. Respondents have undertaken to: 

a. Within 30 days of the entry of this Order, review and correct as necessary 

all relevant disclosure documents concerning mutual fund share class selection and 

12b-1 fees. 

b. Within 30 days of the entry of this Order, evaluate whether existing clients 

should be moved to a lower-cost share class and move clients as necessary. 

                                                 
5
  A willful violation of the securities laws means merely “‘that the person charged with the duty knows what 

he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 

(D.C. Cir. 1949)).  There is no requirement that the actor “‘also be aware that he is violating one of the Rules or 

Acts.’”  Id. (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)). 



 

 

 

5 

c. Within 30 days of the entry of this Order, evaluate, update (if necessary), 

and review for the effectiveness of their implementation, Respondents’ policies and 

procedures so that they are reasonably designed to prevent violations of the 

Advisers Act in connection with disclosures regarding mutual fund share class 

selection. 

d. Within 30 days of the entry of this Order, notify affected investors (i.e., 

those former and current clients who, during the Relevant Period of inadequate 

disclosure, purchased or held 12b-1 fee paying share class mutual funds when a 

lower-cost share class of the same fund was available to the client) (hereinafter, 

“affected investors”) of the settlement terms of this Order in a clear and 

conspicuous fashion. 

e. Within 40 days of the entry of this Order, certify, in writing, compliance 

with the undertaking(s) ordered pursuant to Section IV.E., below.  The certification 

shall identify the undertaking(s), provide written evidence of compliance in the 

form of a narrative, and be supported by exhibits sufficient to demonstrate 

compliance.  The certification and supporting material shall be submitted to 

Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, MA 

02110, or such other address as the Commission staff may provide, with a copy to 

the Office of Chief Counsel of the Division of Enforcement, Securities and 

Exchange Commission, 100 F. Street, NE, Washington, DC 20549.   

f. For good cause shown, the Commission staff may extend any of the 

procedural dates relating to these undertakings.  Deadlines for procedural dates 

shall be counted in calendar days, except that if the last day falls on a weekend or 

federal holiday, the next business day shall be considered the last day. 

IV. 

 In view of the foregoing, the Commission deems it appropriate, and in the public interest to 

impose the sanctions agreed to in Respondents’ Offer. 

 Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, it is hereby 

ORDERED that: 

 A. Respondents shall cease and desist from committing or causing any violations and 

any future violations of Sections 206(2) and 207 of the Advisers Act. 

B. Respondents are censured.   

C. Respondents, jointly and severally, shall pay disgorgement and prejudgment 

interest to affected investors, totaling $3,528,377 as follows: 



 

 

 

6 

(i.) Respondents, jointly and severally, shall pay disgorgement of $3,169,123 

and prejudgment interest of $359,254, consistent with the provisions of this 

Subsection C and subject to the offset provisions of Subsection C.(vii) below.    

(ii.) Within ten (10) days of the entry of this Order, Respondents shall deposit 

the full amount of the disgorgement and prejudgment interest (the “Distribution 

Fund”) into an escrow account at a financial institution not unacceptable to the 

Commission staff and Respondents shall provide evidence of such deposit in a form 

acceptable to the Commission staff.  If timely deposit is not made, additional 

interest shall accrue pursuant to SEC Rule of Practice 600 [17 C.F.R. § 201.600]. 

(iii.) Respondents shall be responsible for administering the Distribution Fund 

and may hire a professional acceptable to the Commission, at its own cost, to assist 

it in the administration of the distribution.  The costs and expenses of administering 

the Distribution Fund, including any such professional services, shall be borne by 

Respondents and shall not be paid out of the Distribution Fund.   

(iv.) Respondents shall distribute the amount of the Distribution Fund to each 

affected investor an amount representing: (a) the 12b-1 fees attributable to the 

affected investor during the Relevant Period; and (b) reasonable interest paid on 

such fees,6 pursuant to a disbursement calculation (the “Calculation”) that will be 

submitted to, reviewed, and approved by the Commission staff in accordance with 

this Subsection C.  The Calculation shall be subject to a de minimis threshold.  No 

portion of the Distribution Fund shall be paid to any affected investor account in 

which Respondents or their past or present officers or directors have a financial 

interest. 

(v.) Respondents shall, within ninety (90) days of the entry of this Order, submit 

a Calculation to the Commission staff for review and approval.  Respondents shall 

also provide to the Commission staff such additional information and supporting 

documentation as the Commission staff may request for the purpose of its review.  

In the event of one or more objections by the Commission staff to Respondents’ 

proposed Calculation or any of its information or supporting documentation, 

Respondents shall submit a revised Calculation for the review and approval of the 

Commission staff or additional information or supporting documentation within ten 

(10) days of the date that Respondents are notified of the objection.  The revised 

Calculation shall be subject to all of the provisions of this Subsection C.   

(vi.) Respondents shall, within thirty (30) days of the written approval of the 

Calculation by the Commission staff, submit a payment file (the “Payment File”) for 

                                                 
6
  Reasonable interest will be calculated at the Short-Term Applicable Federal Rate plus three percent (3%), 

compounded quarterly from the end of the year when Respondents or Respondents’ associated persons received the 

12b-1 fees to the date the Respondent completed its self-report pursuant to the SCSD Initiative. 

      



 

 

 

7 

review and acceptance by the Commission staff demonstrating the application of the 

methodology to each affected investor.  The Payment File should identify, at a 

minimum: (1) the name of each affected investor, (2) the exact amount of the 

payment to be made from the Distribution Fund to each affected investor, and (3) the 

application of a de minimis threshold. 

 

(vii.) Respondents shall disburse all amounts payable to affected investors within 

90 days of the date the Commission staff accepts the Payment File unless such time 

period is extended as provided in Paragraph (x.) of this Subsection C.  The amount 

Respondents pay to affected investors on or after February 12, 2018, up until the 

lapse of 90 days following the date of staff’s acceptance of the Payment File for 

12b-1 fees the Respondents received during the Relevant Period, will dollar for 

dollar offset the disgorgement payable to the Commission pursuant to this 

Subsection C, subject to approval by Commission staff.  If, after Respondents’ 

reasonable efforts to distribute the Distribution Fund pursuant to the approved 

Payment File, Respondents are unable to distribute any portion of the Distribution 

Fund for good cause, including factors beyond Respondents’ control, Respondents 

shall transfer any such undistributed funds to the Commission for transmittal to the 

United States Treasury in accordance with Section 21F(g)(3) of the Securities 

Exchange Act of 1934 when the distribution of the funds is complete and before the 

final accounting provided for in Paragraph (ix.) below is submitted to Commission 

staff.  Any such payment shall be made in accordance with Paragraph (xi.) below.  

 

(viii.) A Distribution Fund is a Qualified Settlement Fund (“QSF”) under Section 

468B(g) of the Internal Revenue Code (“IRC”), 26 U.S.C. §§1.468B.1-1.468B.5.   

Respondents agree to be responsible for all tax compliance responsibilities 

associated with distribution of the Distribution Fund, including but not limited to 

tax obligations resulting from the Distribution Fund’s status as a QSF and the 

Foreign Account Tax Compliance Act (“FATCA”), and may retain any 

professional services necessary. The costs and expenses of any such professional 

services shall be borne by Respondents and shall not be paid by the Distribution 

Fund.  

(ix.) Within 150 days after Respondents complete the distribution of all amounts 

payable to the affected investors, Respondents shall submit to the Commission staff 

a final accounting and certification of the disposition of the Distribution Fund for 

Commission approval.  The final accounting shall be in a format to be provided by 

the Commission staff. The final accounting and certification shall include: (1) the 

amount paid to each affected investor, with reasonable interest; (2) the date of each 

payment; (3) the check number or other identifier of money transferred to each 

affected investor; (4) the amount of any returned payment and the date received; (5) 

a description of any effort to locate an affected investor whose payment was 

returned or to whom payment was not made for any reason; (6) the total amount, if 

any, to be forwarded to the Commission for transfer to the United States Treasury; 



 

 

 

8 

and (7) an affirmation that Respondents have made payments from the Distribution 

Fund to affected investors in accordance with the Payment File approved by the 

Commission staff.  Respondents shall submit the final accounting and certification, 

together with proof and supporting documentation of such payment in a form 

acceptable to Commission staff, under a cover letter that identifies Opco and OAM 

as the Respondents in these proceedings and the file number of these proceedings to 

Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, MA 

02110, or such other address as the Commission staff may provide.  Any and all 

supporting documentation for the accounting and certification shall be provided to 

the Commission staff upon request, and Respondents shall cooperate with any 

additional requests by the Commission staff in connection with the accounting and 

certification. 

  

(x.) The Commission staff may extend any of the procedural dates set forth in 

Paragraphs (ii.) through (ix.) of this Subsection C for good cause shown. Deadlines 

for dates relating to the Distribution Fund shall be counted in calendar days, except 

if the last day falls on a weekend or federal holiday, the next business day shall be 

considered the last day.  

(xi.) Respondents’ transfer of any undistributed funds to the Commission for 

transmittal to the United States Treasury must be made in one of the following 

ways:   

(a) Respondents may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(b) Respondents may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(c) Respondents may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter 

identifying Respondents as Respondents in these proceedings, and the file number 

of these proceedings; a copy of the cover letter and check or money order must be 

sent to Robert Baker, Boston Regional Office, 33 Arch Street, 24th Floor, Boston, 

MA 02110, or such other address as the Commission staff may provide. 

http://www.sec.gov/about/offices/ofm.htm


 

 

 

9 

D.   Respondents acknowledge that the Commission is not imposing a civil penalty 

based upon Respondents’ self-report in the SCSD Initiative.  If at any time following the entry of 

this Order, the Division obtains information indicating that Respondents knowingly provided 

materially false or misleading information or materials to the Commission, or in a related 

proceeding, the Division may, at its sole discretion and with prior notice to the Respondents, 

petition the Commission to reopen this matter and seek an order directing that the Respondents pay 

a civil money penalty.  Respondents may contest by way of defense in any resulting administrative 

proceeding whether it knowingly provided materially false or misleading information, but may not: 

(1) contest the findings in this Order; or (2) assert any defense to liability or remedy, including, but 

not limited to, any statute of limitations defense. 

 E. Respondents shall comply with the undertakings enumerated in Section III, 

paragraphs 13.d and 13.e above. 

 By the Commission. 

 

 

 

       Vanessa A. Countryman 

       Acting Secretary