2019-08-01 sec-litreleases litigation_release 66 KB 2,754 chars

SEC v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. LR-24550, District of Massachusetts (Aug. 1, 2019) — Press Release

raw: Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network

Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655 (Aug. 1, 2019)

Caption
District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joiners of America v. NYC Flooring LLC
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summary

Commonwealth Equity Services, LLC, a registered investment adviser, was charged by the SEC for failing to disclose material conflicts of interest related to over $100 million in revenue sharing it received from a broker for client investments in certain mutual fund share classes.

paragraph

The SEC alleged that Commonwealth Equity Services, LLC breached its fiduciary duty by failing to disclose material conflicts of interest related to over $100 million in revenue sharing it received from a broker for client investments in certain mutual fund share classes. The firm allegedly concealed that cheaper fund options existed and that some funds generated no revenue sharing, depriving clients of critical information to make informed investment decisions. Commonwealth is charged with violating the antifraud and compliance provisions of Section 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

narrative

The Securities and Exchange Commission (SEC) charged Commonwealth Equity Services, LLC, a registered investment adviser and broker-dealer, with failing to disclose material conflicts of interest related to over $100 million in revenue sharing it received from a broker for client investments in certain mutual fund share classes. The alleged fraud involved Commonwealth's failure to inform clients about less expensive investment options and its receipt of revenue sharing payments, breaching its fiduciary duty. The revenue sharing agreement, which began in at least 2007, paid Commonwealth a portion of the money that certain mutual fund companies paid to the broker to sell their funds through the broker. Between July 2014 and December 2018, Commonwealth received over $100 million in revenue sharing from the broker related to client investments in certain share classes of 'no transaction fee' and 'transaction fee' mutual funds. The SEC alleged that Commonwealth concealed that cheaper fund options existed, that some funds generated no revenue sharing, and that payments were made under its 'transaction fee' program, depriving clients of critical information to make informed investment decisions. The Complaint asserts violations of Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7. The litigation, filed in the U.S. District Court for the District of Massachusetts, is being handled by SEC trial counsel from the Boston Regional Office.

Enriched metadata

Scheme
investment-adviser-fraud (100%)
Court
District of Massachusetts
Case No.
1:19-cv-11655
Entity
Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
Classified investment-adviser-fraud(confidence 100%). EDGAR detection: forms ADV/ADV-E/ADV-W/Form D· recall 33% / precision 13%. detection rule →
Statutes
Section 206(2) and 206(4) of the Investment Advisers ActSection 206(2) and 206(4) of the Investment Advisers Act
Parties
District Council of New York City and Vicinity of the United Brotherhood of Carpenters and Joiners of AmericaNYC Flooring LLC
Keywords
commonwealthrevenue sharingrevenuesharingcommonwealth equityequity servicescommonwealth financialfinancial networkmutual fundinvestmentsfailing discloseclient investmentscommonwealth receivedalleges commonwealthsharing payments

Exhibits & Attached Documents (1)

Extracted insights

Dollar amounts 1
  • $100.00M $100 million $100M–$1B
Entities 3
  • organization Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
  • agency Securities and Exchange Commission
  • organization Securities and Exchange Commission
Triples 14
  • Securities and Exchange Commission charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network failed to disclose conflicts arising from receiving revenue sharing on client investments
  • Securities and Exchange Commission filed lawsuit Securities and Exchange Commission v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655 (D. Mass. filed August 1, 2019)
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network received revenue sharing on client investments
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network charged for failing to disclose conflicts receiving revenue sharing on client investments
  • Securities and Exchange Commission charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network failed to disclose conflicts arising from receiving revenue sharing on client investments
  • Securities and Exchange Commission filed lawsuit Securities and Exchange Commission v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655 (D. Mass. filed August 1, 2019)
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network received revenue sharing on client investments
  • SEC charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
  • SEC charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network failed to disclose conflicts arising from receiving revenue sharing on client investments
  • Securities and Exchange Commission filed Litigation Release No. 24550 on August 1, 2019
  • Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network is defendant in Securities and Exchange Commission v. Commonwealth Equity Services, LLC, No. 1:19-cv-11655 (D. Mass.)
PDF (from attached: complaint)
Comp24550 · Source
Text layers
Extracted body text (2,754c) 
SEC Charges Investment Adviser for Failing to Disclose Conflicts Arising from Receiving Revenue Sharing On Client Investments Litigation Release No. 24550 / August 1, 2019 Securities and Exchange Commission v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655 (D. Mass. filed August 1, 2019) The Securities and Exchange Commission today charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network (Commonwealth), a registered investment adviser and broker-dealer based in Waltham, Massachusetts, with failing to disclose material conflicts of interest related to revenue sharing Commonwealth received for certain client investments. According to the SEC's Complaint, since at least 2007, Commonwealth had a revenue sharing agreement with the broker it required most of its clients use for trades in their accounts. Under that agreement, Commonwealth received a portion of the money that certain mutual fund companies paid to the broker to be able to sell their funds through the broker, if Commonwealth invested client assets in certain share classes of those funds. Between July 2014 and December 2018, Commonwealth received over $100 million in revenue sharing from the broker related to client investments in certain share classes of "no transaction fee" and "transaction fee" mutual funds. The SEC's Complaint alleges that Commonwealth breached its fiduciary duty to its clients by failing to disclose the conflicts of interest created by its receipt of compensation through the revenue sharing agreement. Specifically, the SEC's Complaint alleges that Commonwealth failed to tell its clients that (i) there were mutual fund share class investments that were less expensive to clients than some of the mutual fund share class investments that resulted in revenue sharing payments to Commonwealth, (ii) there were mutual fund investments that did not result in any revenue sharing payments to Commonwealth, and (iii) there were revenue sharing payments to Commonwealth under the broker's "transaction fee" program. As a result of these material omissions, Commonwealth's advisory clients invested without a full understanding of the firm's compensation motives and incentives. The Complaint alleges that Commonwealth violated the antifraud and compliance provisions of Section 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The SEC's investigation was conducted by Asset Management Unit staff in Denver, Boston and Washington, DC, including Danielle R. Voorhees, Naomi Sevilla, John Farinacci, Robert Baker and Jason Burt. The litigation will be handled by Senior Trial Counsel Alfred Day and Richard Harper of the Boston Regional Office. SEC Complaint
OCR text (2,754c · html-text · 99% conf) 
SEC Charges Investment Adviser for Failing to Disclose Conflicts Arising from Receiving Revenue Sharing On Client Investments Litigation Release No. 24550 / August 1, 2019 Securities and Exchange Commission v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655 (D. Mass. filed August 1, 2019) The Securities and Exchange Commission today charged Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network (Commonwealth), a registered investment adviser and broker-dealer based in Waltham, Massachusetts, with failing to disclose material conflicts of interest related to revenue sharing Commonwealth received for certain client investments. According to the SEC's Complaint, since at least 2007, Commonwealth had a revenue sharing agreement with the broker it required most of its clients use for trades in their accounts. Under that agreement, Commonwealth received a portion of the money that certain mutual fund companies paid to the broker to be able to sell their funds through the broker, if Commonwealth invested client assets in certain share classes of those funds. Between July 2014 and December 2018, Commonwealth received over $100 million in revenue sharing from the broker related to client investments in certain share classes of "no transaction fee" and "transaction fee" mutual funds. The SEC's Complaint alleges that Commonwealth breached its fiduciary duty to its clients by failing to disclose the conflicts of interest created by its receipt of compensation through the revenue sharing agreement. Specifically, the SEC's Complaint alleges that Commonwealth failed to tell its clients that (i) there were mutual fund share class investments that were less expensive to clients than some of the mutual fund share class investments that resulted in revenue sharing payments to Commonwealth, (ii) there were mutual fund investments that did not result in any revenue sharing payments to Commonwealth, and (iii) there were revenue sharing payments to Commonwealth under the broker's "transaction fee" program. As a result of these material omissions, Commonwealth's advisory clients invested without a full understanding of the firm's compensation motives and incentives. The Complaint alleges that Commonwealth violated the antifraud and compliance provisions of Section 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The SEC's investigation was conducted by Asset Management Unit staff in Denver, Boston and Washington, DC, including Danielle R. Voorhees, Naomi Sevilla, John Farinacci, Robert Baker and Jason Burt. The litigation will be handled by Senior Trial Counsel Alfred Day and Richard Harper of the Boston Regional Office. SEC Complaint

Related documents (1)