SEC v. CAMBRIDGE INVESTMENT RESEARCH ADVISORS, INC.; and CAMBRIDGE INVESTMENT RESEARCH, INC., No. 4:22-cv-00071-SMR, Southern District of Iowa (Mar. 20, 2025) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF IOWA
CENTRAL DIVISION
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,

vs.
CAMBRIDGE INVESTMENT RESEARCH
ADVISORS, INC.,
Defendant, and
CAMBRIDGE INVESTMENT RESEARCH,
INC.,
Relief Defendant.

Case No.: 22-cv-71

COMPLAINT
Plaintiff, the United States Securities and Exchange Commission (the “SEC”), alleges as
follows:
SUMMARY
1. Defendant Cambridge Investment Research Advisors, Inc. (“CIRA”) is an SEC-
registered investment adviser.  Relief Defendant Cambridge Investment Research, Inc. (“CIRI”)
is an SEC-registered broker-dealer.  CIRA and CIRI are affiliates: they each are wholly-owned
subsidiaries of Cambridge Investment Group, Inc. (“CIGI”) and have the same board of directors
and key executives.
2. As an investment adviser, CIRA owes its advisory clients a fiduciary duty to,
among other things, act in its clients’ best interests, seek best execution of a client’s transactions,
and fully and fairly disclose all material facts about the advisory relationship, including

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disclosing any conflicts of interest that might cause CIRA to put its own interests before those of
its clients.  CIRA’s clients paid it an advisory fee in exchange for CIRA selecting and managing
their investments in a manner consistent with its fiduciary duty.
3. As alleged in this Complaint, CIRA breached its fiduciary duty and regularly and
repeatedly put its financial interests ahead of its clients.  CIRA also continuously failed to
disclose to its clients material facts about its conflicts of interest, including that some investment
choices generated additional revenue for its affiliate CIRI, and/or permitted CIRA to avoid
paying fees, while other investment choices would have generated much less or no revenue,
and/or the paying of fees.  In many cases these other investment choices were less expensive, and
therefore more beneficial, for CIRA’s clients.
4. The undisclosed conflicts of interest at issue in this case created incentives for
CIRA to select and hold investments for advisory clients that financially benefited CIRA and
CIRI over the interests of CIRA’s clients, including the incentive to select and hold investments
that were more expensive for clients.
5. CIRA and CIRI, acting as CIRA’s affiliated broker-dealer, collectively benefited
by millions of dollars as a result of CIRA breaching its fiduciary duty and defrauding its clients.
6. Over the course of several years, CIRA defrauded its advisory clients and/or
repeatedly breached its fiduciary duty that it owed to them in five primary ways:
7. First, from at least January 2014 and, in many cases, continuing to the present,
CIRA invested clients in certain mutual funds, including “no transaction fee” (“NTF”) mutual
funds and money market cash sweep funds (“sweep funds”), that generated, or had the potential
to generate, revenue for CIRI from clearing brokers.  CIRI’s revenue sharing agreements with
the clearing brokers created financial incentives for CIRA to select investments that would lead

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to greater compensation to CIRI, but that were not in the best interests of CIRA’s clients.  CIRA
did not adequately disclose all material facts regarding the conflicts of interest that arose when it
invested its advisory clients’ assets in more expensive NTF mutual funds and sweep funds that
would generate revenue for CIRI, while other less expensive options were available to clients
that would not provide that additional compensation.
8. During this same time period, CIRA also failed to act consistent with its duty of
care obligations to its clients, which requires that CIRA provide advice in the best interest of
clients, by failing to seek best execution and evaluate whether clients should be placed in and/or
moved to a lower-cost fund.  Moreover, CIRA’s investment of clients in more expensive funds
when lower-cost options were available, and failure to assess whether clients should be
converted to lower-cost options, is contrary to CIRA’s disclosures to clients that it would
“endeavor at all times to put the interest of [its] clients ahead of [its] own.”
9. Second, from at least January 2014 to at least December 2016, CIRA had a
financial incentive to select NTF mutual funds for its “wrap account” advisory clients (i.e.,
clients who paid CIRA an all-in “wrapped” advisory fee that covered not only investment advice,
but also any transaction fees) for which CIRA did not have to pay transaction fees, rather than
lower-cost options for which CIRA would have to pay transaction fees.  To the present, CIRA
has invested and held wrap account clients in more expensive NTF mutual funds even when
lower-cost options were available, even after CIRI moved to an asset-based fee model for
brokerage services in December 2016 that eliminated transaction fees.
10. From at least January 2014 to at least December 2016, CIRA violated its fiduciary
duty to clients by failing to disclose its conflicts of interest associated with recommending that
wrap account clients purchase NTF mutual funds for which CIRA would avoid paying

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transaction fees.  From at least January 2014 to the present, CIRA also violated its fiduciary duty
to clients by (1) investing wrap account clients in NTF funds that were not in the clients’ best
interest; (2) failing to seek best execution; and (3) failing to evaluate whether clients should be
moved to a lower-cost mutual fund option.
11. Third, beginning in July 2017 and continuing through the present, CIRA
repeatedly violated its fiduciary duty to clients by converting certain traditional accounts to wrap
accounts without providing clients with full and fair disclosure concerning the conversions, and
instead providing false and misleading information regarding the necessity for the conversions.
CIRA also failed to disclose that it had a financial incentive to convert clients from traditional
accounts to wrap accounts given that CIRA collected higher advisory fees from wrap accounts.
Further, CIRA violated its fiduciary duty by failing to adequately determine whether the
conversion was in each client’s best interest consistent with its duty of care.
12. Fourth, from at least January 2015 to March 2018, CIRA failed to adequately
disclose to its clients CIRI’s program of giving forgivable loans to CIRA investment adviser
representatives and the associated conflicts of interest.
13. Fifth, from at least January 2014 to the present, CIRA failed to adopt and
implement written policies and procedures reasonably designed to prevent violations of the
Investment Advisers Act of 1940 (“Advisers Act”) in connection with its investment selection,
selection of account type for clients, making recommendations of investments that were in the
best interests of its advisory clients, and disclosure of conflicts of interest.
14. By engaging in the conduct alleged herein, CIRA violated Sections 206(2) and
206(4) of the Advisers Act [15 U.S.C. §§ 80b-6(2) and 80b-6(4)], and Rule 206(4)-7 thereunder
[17 C.F.R. § 275.206(4)-7].  The SEC requests, among other things, that this Court enjoin CIRA

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from committing further violations of the federal securities laws as alleged in this Complaint,
and order CIRA to pay monetary penalties based upon these violations.  The SEC also requests
that CIRA and relief defendant CIRI disgorge all ill-gotten gains and/or unjust enrichment
received directly or indirectly, with pre-judgment interest thereon, as a result of the alleged
violations.
JURISDICTION AND VENUE

15. The Court has jurisdiction over this action pursuant to Sections 209(d), 209(e)(1),
and 214 of the Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e)(1), and 80b-14].
16. Venue is proper in this district under Section 214 of the Advisers Act [15 U.S.C. §
80b-14] and 28 U.S.C. § 1391(b)(1) and (2) because, among other things, CIRA inhabits, resides,
and transacts business in this district, and certain of the transactions, acts, practices and courses
of conduct constituting violations of the federal securities laws occurred within this district.
17. CIRA has, directly or indirectly, made use of the means or instrumentalities of
interstate commerce, of the mails, or of the facilities of a national securities exchange in
connection with the transactions, acts, practices and courses of business alleged in this
complaint.
THE DEFENDANT
18. Defendant CIRA, headquartered in Fairfield, Iowa, has been registered with the
SEC as an investment adviser since at least February 2005.  CIRA is a wholly-owned subsidiary
of CIGI.  CIRA is in the business of providing investment advice concerning securities for
compensation.  As of June 2021, CIRA has more than 3,000 employees, more than 3,300
investment adviser representatives (“IARs”), more than 211,000 advisory clients (who

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collectively hold more than 337,000 accounts), and more than $68.5 billion in regulatory assets
under management, the majority of which are associated with discretionary client accounts.
19. CIRA entered into agreements to toll or suspend the running of any statute of
limitations for the period from January 7, 2019 through March 1, 2022.
THE RELIEF DEFENDANT
20. Relief Defendant CIRI, also headquartered in Fairfield, Iowa, has been registered
with the SEC as a broker-dealer since 1995.  Prior to February 2005, CIRI was dually registered
as a broker-dealer and investment adviser, and CIRA’s advisory services were conducted under
CIRI in its former capacity as an investment adviser. CIRI is also a wholly-owned subsidiary of
CIGI.  CIRI and CIRA have the same board of directors, and key executives hold the same
positions, roles, and responsibilities at both firms, including compliance relating to the
misconduct alleged in this Complaint.  Some CIRA IARs are also licensed as registered
representatives of CIRI.  Because CIRI employees regularly perform services for CIRA and vice-
versa, CIRI, CIRA, and another related third party entity have entered into an expense-sharing
agreement to apportion certain costs and expenses, including administrative and overhead
expenses, between CIRI and CIRA.
21. CIRI entered into agreements to toll or suspend the running of any statute of
limitations for the period from September 10, 2020 through March 1, 2022.
22. CIRI, as a relief defendant, has no legitimate claim to the revenue sharing it
received as alleged in the Complaint because it obtained the payments as a result of CIRA’s
fraudulent conduct.

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FACTUAL ALLEGATIONS
I. CIRA’s Advisory Services

23. CIRA provides investment advisory services to a variety of clients, including
individual retail clients who rely on investments in their CIRA advisory accounts for, among
other things, income and retirement.  CIRA’s advisory services include both investment advice
and the ongoing management of clients’ investment portfolios.  CIRA provides advisory services
through over 3,300 IARs.
24. CIRA is an “investment adviser” within the meaning of Section 202(a)(11) of the
Advisers Act [15 U.S.C. § 80b-2(a)(11)] because it is engaged in the business of providing
investment advice as to the value of securities and as to the advisability of investing in,
purchasing, and selling securities.
25. In exchange for these advisory services, CIRA generally charges its clients
advisory fees equal to a percentage of the dollar amount of the client’s assets under management.
These advisory fees are periodically deducted from the clients’ advisory accounts.
26. CIRA advises clients through both traditional management programs and wrap
programs.  Under the traditional management programs, there are two separate types of fees
directly charged to clients: an investment advisory fee for advisory services charged by CIRA,
and a ticket charge, or transaction fee, for each transaction (i.e., buy/sell/exchange) in the client’s
account charged by CIRI.
27. Under a wrap program, advisory services and transaction services are provided for
a single fee that CIRA directly charges the client.  Wrap program clients pay CIRA an advisory
fee based on the amount of the clients’ assets CIRA advises, but do not pay separate transaction
fees for trades.  Rather, clients pay an annual fee that covers the costs of several services

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“wrapped” together, including transaction fees.  CIRA is responsible for paying any transaction
fees charged for trades made in wrap accounts.
28. CIRA advises a majority of its clients (both in terms of regulatory assets under
management and number of accounts) through its wrap programs.
29. CIRA typically manages the client accounts in its traditional and wrap programs
on a discretionary basis, meaning that advisory clients have granted CIRA the authority to trade
the assets in their advisory accounts without CIRA needing to obtain specific approval from its
clients for each transaction.
30. CIRA typically invests clients’ wrap accounts in mutual funds, stocks, and bonds,
with a heavy emphasis in mutual funds.  As described more below, mutual funds generally have
their own fees that come out of the funds’ assets.
31. As a registered investment adviser with the SEC, CIRA is required to file and
update, at least annually, disclosures in a uniform registration application called a Form ADV.
As part of this application, CIRA is required to create an SEC-mandated Form ADV Part 2A or
brochure (“Brochure”), containing certain disclosures about its advisory business.  At least once
a year, from at least 2013 through 2021, CIRA filed a Brochure with the SEC, posted a copy of
the latest Brochure to its publicly-available website, and provided to every advisory client a
summary of material changes to the Brochure.
32. As an investment adviser, CIRA is a fiduciary for its advisory clients.  As such,
CIRA owes its advisory clients an affirmative duty of utmost good faith, is obligated to provide
full and fair disclosure of all material facts, has an affirmative obligation to employ reasonable
care to avoid misleading its clients, has a duty to act in its clients’ best interests, and has a duty to
seek best execution of a client’s transactions.  CIRA’s duty to disclose all material facts includes

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a duty to tell clients about all of its actual or potential conflicts of interest that might influence
CIRA or its IARs to render investment advice that is not disinterested.
33. CIRA acknowledges this fiduciary duty in, among other places, its Brochure,
which CIRA is required to provide to clients.
II. Background on Mutual Funds and Money Market Sweep Funds

34. Mutual funds are investment products often used by individuals.  A mutual fund
pools money from many investors and invests the money in securities or other assets.  A mutual
fund has various expenses that are paid from fund assets.  These internal expenses are reflected
in the fund’s “expense ratio.”  Such expenses include fees paid to the adviser that manages the
fund, operational expenses, and fees paid to the brokers that sell shares of, and provide services
to, the mutual fund.  These are ongoing fees and expenses charged throughout the life of the
mutual fund investment.  Fees and expenses are an important consideration in selecting a mutual
fund because these charges lower an investor’s returns.
35. There are many types of mutual funds that cover a variety of investment
objectives and with different portfolios of securities.  Each mutual fund often has multiple,
different “share classes.”  Each share class of a mutual fund represents an interest in the exact
same portfolio of securities, with the only principal difference typically being the cost to the
investor.  An individual investor may pay more, or less, for precisely the same mutual fund
investment, depending on the share class.  Share classes that have higher costs, or expense ratios,
generally have lower returns than share classes with lower expense ratios.
36. Additionally, when investors purchase or sell mutual funds through clearing
brokers – i.e., broker-dealers that maintain custody of investor assets and execute all securities
trades – the clearing brokers may or may not charge a transaction fee.  Clearing brokers

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generally offer a “no transaction fee” (“NTF”) program, through which investors can purchase
and sell from a menu of mutual funds without a transaction fee.  The clearing brokers also offer a
“transaction fee” (“TF”) program, through which investors can purchase and sell from a different
menu of mutual funds, with a transaction fee.
37. In general, NTF mutual funds have higher internal expense ratios than TF mutual
funds.  In many instances, the NTF mutual funds also have TF share classes available with lower
expense ratios but that charge a transaction fee.  It is often in the client’s best interest to be in the
mutual fund share class with the lowest expense ratio, even when the client pays a transaction
fee.
38. When a client is in a wrap account (i.e., an account for which CIRA, rather than
the client, is responsible for paying transaction fees), it is in the client’s best interest to be in the
mutual fund share class with the lower expense ratio.  A CIRA client who held NTF mutual
funds in a wrap account would pay higher total annual fund expenses over time – and would
therefore earn lower returns – than one who held a lower-cost share class of the same fund.
39. CIRA also recommended to eligible clients different cash sweep account
programs offered by CIRI.  A cash sweep account is an interest-bearing bank account or money
market mutual fund used by broker-dealers to hold cash (e.g., incoming cash deposit, dividends,
or certain investment returns) until the investor or adviser decides how to invest the money.  The
cash is automatically deposited, or “swept,” into the cash sweep account.
40. A money market mutual fund is a type of mutual fund that generally invests in
short-term, highly liquid securities with limited credit risk.  As with other mutual funds, money
market mutual funds may offer investors different share classes.  Each share class represents an
interest in the same portfolio of securities with the same investment objective, with the primary

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difference among the share classes being the fee structure.  CIRA invested clients in money
market funds (“sweep funds”) as part of the cash sweep account program.
III. The Role of CIRI and the Clearing Brokers
41. CIRA typically required its clients to use CIRI as an introducing broker, meaning
CIRI acted as an intermediary by taking orders from CIRA regarding the purchase or sale of
securities, and then contracted with a clearing broker who actually received payments and
securities and executed trades.
42. Since at least January 2014, CIRI has contracted with two firms – Clearing Broker
1 and Clearing Broker 2 – to provide custody and clearing services for the vast majority of
CIRI’s customers, including CIRA advisory clients.  These firms maintain custody of investor
assets and execute all securities trades for CIRA accounts, including wrap accounts.  CIRA
discloses in its Brochure that “[b]ecause CIRA and [CIRI] are under common ownership and
have mutual executive officers and control persons, the decision to use [Clearing Broker 1] and
[Clearing Broker 2] is mutually determined by both [CIRI] and CIRA.”  Clearing Broker 1 and
Clearing Broker 2 offer to CIRA clients both an NTF and TF mutual fund program.
43. Additionally, from at least January 2014 to at least May 2019, CIRA and CIRI
had agreements in place with another clearing firm – Clearing Broker 3 (collectively, with
Clearing Broker 1 and Clearing Broker 2, the “Clearing Brokers”) – to, among other things,
serve as an introducing and clearing broker for certain CIRA accounts.  Clearing Broker 3 also
offered to CIRA clients similar NTF and TF mutual fund programs.

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IV. CIRA Breached Its Fiduciary Duty to Clients in Connection with CIRI’s Receipt of
Revenue Sharing

44. From at least January 2014 through the present, CIRI had agreements to receive
compensation from one or more of the Clearing Brokers as a direct result of CIRA investing its
advisory clients in certain NTF mutual funds and/or sweep funds that were offered by the
Clearing Brokers.  As a result of these arrangements, CIRA’s interests were in conflict with its
clients’ interests.  The arrangements created financial incentives for CIRA to select NTF mutual
funds and sweep funds that would lead to greater compensation to its affiliated broker-dealer
CIRI, and often that were not in the best interests of CIRA’s clients.
45. CIRA either did not disclose, or did not adequately disclose, these material
conflicts to its advisory clients.  CIRA’s failures to disclose this information were omissions of
material fact, CIRA was required by law to fully disclose its conflicts of interest to its advisory
clients, and CIRA was at least negligent in failing to disclose such information.  Certain other
disclosures were materially false and misleading, and CIRA also acted at least negligently
regarding those disclosures.
46. In addition, from at least January 2014 to the present, CIRA invested and/or held
client assets in NTF mutual funds and sweep funds, including those that generated revenue
sharing for CIRI, but which were more expensive than other shares classes of the same fund, or
in the case of sweep funds more expensive than other similar funds.  By doing so CIRA at least
negligently breached its fiduciary duty to its clients by failing to act in the clients’ best interests
and/or failing to seek best execution.

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A. CIRI’s Revenue Sharing with the Clearing Brokers
47. When CIRA purchased or sold NTF mutual funds for clients, clients did not pay a
transaction fee, but they did pay fees for their share of mutual fund expenses (e.g., expense
ratios).  The Clearing Brokers received a certain percentage of revenue from the NTF mutual
funds by way of recurring payments paid by the mutual funds in exchange for being offered by
the Clearing Broker as an NTF mutual fund.  The Clearing Brokers then shared a portion of the
fees it received with CIRI.
48. Since at least January 2014, under agreements between CIRI and the Clearing
Brokers, the Clearing Brokers shared these recurring fees, or mutual fund revenue, with CIRI
based on CIRA’s client assets invested in NTF mutual funds (“NTF revenue sharing” or “NTF
revenue”).  However, the Clearing Brokers would not pay this revenue sharing to CIRI if CIRA’s
client assets were invested in TF mutual funds or certain fund families.
49. CIRI stopped receiving NTF revenue from Clearing Broker 3 in May 2019 when
CIRA ended its relationship with Clearing Broker 3.  In August 2019, CIRI amended its
agreement with Clearing Broker 1 to provide that CIRI would stop receiving NTF revenue, and
CIRI may have stopped receiving NTF revenue from Clearing Broker 2 at some point in 2019.
50. Also since at least January 2014 through at least May 2020, CIRI received
revenue from Clearing Broker 2 based on CIRA client assets invested in certain sweep funds that
Clearing Broker 2 offered as sweep account investment options (“sweep revenue sharing” or
“sweep revenue”).  CIRI also received sweep revenue sharing from Clearing Broker 1 from at
least September 2016 through at least April 2020.  CIRI maintains these sweep revenue sharing
agreements to the present.  The revenue sharing payments are generated from a portion of the
assets on the uninvested cash in the clients’ accounts.

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51. From at least January 2014 through the present, CIRA has placed and/or held
clients’ assets in NTF mutual funds, including funds that resulted in NTF revenue to CIRI, even
when other lower-cost share classes of the same mutual funds were available to clients.  During
this time, CIRI has received millions of dollars in NTF revenue from the Clearing Brokers based
on CIRA clients’ investments.
52. Further, from at least January 2014 through the present, CIRA has placed and/or
held clients’ assets in sweep funds, including funds that resulted in sweep revenue sharing
payments to CIRI, even when other lower-cost sweep funds, or share classes of the same funds,
were available to clients.  Indeed, CIRA selected sweep funds that resulted in sweep revenue as
the “default” sweep fund option for client accounts.  During this period, CIRI has received
millions of dollars in sweep revenue from Clearing Broker 1 and Clearing Broker 2 based on
CIRA clients’ investments in sweep funds.
B. CIRI’s Receipt of Revenue Sharing Created Significant Conflicts of Interest

53. As a result of CIRI’s NTF and sweep revenue sharing arrangements with the
Clearing Brokers, CIRA’s interests were in conflict with its clients.  The revenue sharing
arrangements created financial incentives for CIRA to invest clients in NTF mutual funds and
sweep funds that would lead to greater revenue sharing for CIRI.  This was a material conflict of
interest for CIRA, which was exacerbated by the fact that the NTF mutual funds and sweep
funds that generated revenue for CIRI were typically more expensive than other available similar
options, and thus not in the best interests of CIRA’s advisory clients.
54. Regarding NTF revenue sharing, CIRA had a material conflict of interest because
it had a financial incentive to select and hold more expensive mutual funds for clients, including

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NTF mutual funds, when lower-cost share classes of the same mutual fund were available to
clients, but for which CIRI received less or no NTF revenue.
55. CIRI’s NTF revenue sharing agreements with Clearing Broker 1 was also limited
to certain mutual funds, meaning that CIRA had an incentive to choose certain mutual funds that
generate revenue sharing over others that did not.  For example, CIRA could purchase or sell
Fidelity mutual funds for its clients through Clearing Broker 1’s NTF program, but these
investments did not result in NTF revenue sharing with CIRI, whereas CIRI received revenue for
NTF mutual funds from other fund families.
56. Regarding sweep revenue sharing, CIRA had a conflict of interest because it had
an incentive to recommend that clients hold uninvested cash in sweep funds that generated
revenue sharing over other non-revenue generating investments.
57. Further, CIRA had a financial incentive to select and hold more expensive sweep
funds for clients that generated revenue, even when lower-cost sweep funds, or lower-cost share
classes of the same fund, that did not generate revenue sharing were available to clients.
58. In the case of Clearing Broker 1, the sweep fund share classes that resulted in
sweep revenue were more expensive and lower-yielding than other available share classes of the
same funds that did not result in CIRI receiving sweep revenue.  With Clearing Broker 2, the
revenue-generating sweep funds were more expensive and lower-yielding than similar, available
funds that did not result in CIRI receiving sweep revenue.
59. The millions of dollars of NTF and sweep revenue that CIRI received from the
Clearing Brokers was sufficient to create meaningful incentives for CIRA to invest its clients’
assets in investments that were more profitable to CIRI, and more expensive for clients.

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C. CIRA Failed to Adequately Disclose the Revenue Sharing Conflicts of
Interest to its Clients and Failed to Act in its Clients’ Best Interest

60. CIRA failed to fully and fairly disclose the conflicts of interest associated with
CIRI’s revenue sharing arrangements with the Clearing Brokers.  CIRA knew or should have
known that it was required by law to fully disclose conflicts of interest to its advisory clients,
including how the firm intended to address such conflicts, because, among other reasons, the
instructions to Form ADV provided such guidance.  Yet CIRA repeatedly failed to sufficiently
disclose these conflicts of interest to its clients and was at least negligent in doing so.  CIRA also
failed to act consistent with its duty of care obligations to its clients regarding the revenue-
generating investments.
1. NTF Revenue Sharing
61. From at least January 2014 to at least August 2019, CIRA failed to adequately tell
clients that it had incentives to invest clients in more expensive NTF mutual funds in order for
CIRI to receive revenue, when lower-cost share classes were available for the same fund.  In
particular, CIRA failed to disclose to clients that in many cases there were mutual funds in the
NTF programs that had a lower-cost share class available to clients that did not result in revenue
sharing payments to CIRA, and thus CIRA was investing clients in mutual funds that were
contrary to the clients’ best interests.  CIRA also (1) failed to tell clients that CIRI’s NTF
revenue sharing agreement with a clearing broker was limited to certain mutual funds and thus
CIRA had an incentive to select those funds over others; and (2) misled clients that it would
address the conflicts associated with investing clients in mutual funds.

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62. From at least January 2014 through August 2019, CIRA generally disclosed that
CIRA and CIRI had entered into revenue sharing arrangements and that such arrangements
presented a conflict of interest.
63. CIRA also disclosed that: (1) CIRI received “revenue sharing participation” for
assets that were held in the NTF programs offered by Clearing Broker 1 and Clearing Broker 2;
(2) the NTF mutual funds could be purchased “at no cost to CIRA, the CIRA Advisor
Representative or the client”; and (3) “some mutual funds in this NTF program have higher
internal expenses than mutual funds that are not in the NTF program.”
64. Regarding Clearing Broker 3, during this same timeframe, CIRA generally
disclosed that CIRI received a “fee” for “assets in certain mutual funds” held by Clearing Broker
3, and that “[b]ecause CIRA receives an economic benefit, it has a potential conflict of interest in
recommending to clients that they use [Clearing Broker 3] as custodian and invest their assets in
certain mutual funds.”  It was not until March 2019, when CIRA revised its Brochure to
specifically disclose that CIRI “receives revenue for assets in [Clearing Broker 3’s NTF mutual
fund program], which is a conflict of interest because of the increased compensation to [CIRI].”
65. The above disclosures regarding CIRA’s conflicts of interest between at least
January 2014 and at least August 2019 were materially inadequate, false, and/or misleading:
66. First, CIRA failed to adequately disclose to clients that the clients would pay the
higher expense of being in a revenue-generating NTF mutual fund when a lower-cost share class
of the same fund was available, and the related conflicts of interest discussed above.
67. Second, CIRA failed to tell clients that CIRI’s NTF revenue sharing agreement
with a clearing broker was limited to certain mutual funds, such that CIRA had an incentive to

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invest clients in mutual funds that generated revenue sharing over other non-revenue generating
investments.
68. Third, from at least January 2014 to the present, when generally referencing
CIRI’s revenue sharing arrangements, CIRA has repeatedly disclosed that it “endeavor[s] at all
times to put the interest of [its] clients ahead of [its] own... these arrangements could affect the
judgment of [CIRI] or its affiliated persons when recommending investment products.”  This
disclosure falsely and misleadingly indicates that CIRA would address the conflicts associated
with investing clients in NTF mutual funds by prioritizing clients’ best interests over its own.
69. However, in violation of CIRA’s duty of care, CIRA invested clients in more
expensive NTF mutual funds that generated revenue sharing even when lower-cost share classes
of the same fund were available that, given the circumstances, would have been in the clients’
best interests.  By doing so CIRA also breached its fiduciary duty to seek best execution for its
clients.  Moreover, CIRA’s continued failure to assess whether clients invested in NTF mutual
funds should be converted to lower-cost share classes is contrary to its duty of care and
statements that despite its conflicts of interest, CIRA would “endeavor at all times to put the
interest of [its] clients ahead of [its] own.”
2. Sweep Revenue Sharing
70. From at least January 2014 to the present, CIRA failed to adequately tell clients
that it had incentives to invest clients in certain sweep funds in order for CIRI to receive sweep
revenue, including more expensive funds when lower-cost funds or share classes of the same
fund were available to clients.
71. From January 2014 to November 2018, CIRA failed to tell clients that CIRI
received any sweep revenue sharing or otherwise disclose facts relating to its conflicts of interest

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relating to the sweep revenue sharing.  While CIRA did provide clients with a separate disclosure
drafted by Clearing Broker 2, the disclosure only generally described the revenue sharing
program and stated that “[p]articipation by [CIRI] in this program is optional and that [CIRI]
may share with [Clearing Broker 2] in such fees.” (Emphasis added).  This disclosure failed to
inform CIRA’s clients that CIRI actually did participate in the program and did receive fees.  It
further failed to address the availability of similar lower-cost funds and the associated conflicts
of interest with such sweep revenue sharing.
72. Thus, CIRA failed to disclose that the sweep revenue CIRI received created an
incentive for CIRA, when rendering investment advice to its clients, to recommend that clients
hold uninvested cash in sweep funds that generated revenue sharing over other non-revenue
generating investments.  CIRA also did not disclose that these revenue-generating sweep funds
were more expensive and often lower-yielding than other similar sweep funds or share classes of
the same fund that were available to the clients, or that CIRA would select the more expensive
option for clients.
73. In November 2018, CIRA disclosed in its Brochure for the first time that CIRI
generally received revenue from “sweep options” and that this “creates a conflict of interest due
to the financial benefits for [CIRI].”  Beginning in March 2019, CIRA for the first time
specifically disclosed to clients in its Brochure that CIRI received a “financial benefit” when
clients are placed into a “money market sweep” (i.e. sweep fund), and that this represents a
conflict of interest.
74. However, these disclosures were inadequate because they do not disclose that the
sweep revenue sharing created an incentive for CIRA to recommend that its clients keep money

20
in sweep funds and to purchase or hold a sweep fund that generated revenue over other non-
revenue generating and lower-cost options.
75. Further, as referenced above, CIRA repeatedly discloses that it “endeavor[s] at all
times to put the interest of [its] clients ahead of [its] own... these arrangements could affect the
judgment of [CIRI] or its affiliated persons when recommending investment products.”  This
misleadingly indicates that CIRA would address the conflict associated with investing clients in
sweep funds by prioritizing clients’ best interests over its own.  However, in violation of CIRA’s
duty of care, CIRA invested clients in more expensive sweep funds that generated, or have the
potential to generate, revenue sharing even when lower-cost funds or share classes of the same
fund were available that, given the circumstances, would have been in the clients’ best interests.
CIRA also breached its fiduciary duty to seek best execution for its clients.
V. CIRA Violated its Fiduciary Duty to Its Clients When Selecting Investments which
Allowed CIRA to Avoid Paying Transaction Fees

76. From at least January 2014 to at least December 2016, CIRA had a financial
incentive to select NTF mutual funds for clients in wrap accounts rather than lower-cost share
classes of the same fund which would require CIRA to pay transaction fees.  From at least
January 2014 to the present, CIRA has invested and held wrap account clients in more expensive
NTF mutual funds even when lower-cost options were available, even after CIRI moved to an
asset-based fee model for brokerage services in December 2016 that eliminated transaction fees.
77. From at least January 2014 to at least December 2016, CIRA violated its fiduciary
duty to clients by failing to disclose its conflicts of interest in recommending that wrap account
clients purchase NTF mutual funds for which CIRA would avoid paying transaction fees.  From
at least January 2014 to the present, CIRA also violated its fiduciary duty to clients by (1)

21
investing wrap account clients in NTF mutual funds that were not in the clients’ best interest;
(2) failing to seek best execution; and (3) failing to evaluate whether clients should be moved to
a lower-cost mutual fund option.
78. CIRA benefitted when a wrap account client’s trades incurred no or lower
transaction costs because CIRA would retain a larger share of the client’s fee when it incurred
lower out-of-pocket expenses.  In contrast, CIRA would incur more expenses (and thus retain
less of a wrap account client’s annual advisory fee) if the client’s trades incurred higher
transaction costs that CIRA was responsible for paying.
79. For CIRA’s wrap accounts, since the client does not pay a separate transaction
fee, it is in the client’s best interest to be in the mutual fund share class with a lower expense
ratio.
80. From at least January 2014 to at least December 2016, CIRA had a conflict of
interest associated with its selection of NTF mutual funds for wrap accounts because it was
responsible for paying client transaction fees.  CIRA acted in its own interest and contrary to
clients’ interests by investing clients in wrap accounts in NTF mutual funds, whereby CIRA
avoided paying transaction fees while subjecting its clients to higher advisory fees.
81. In violation of its fiduciary duty, CIRA did not disclose that it had an incentive to
select investments for which CIRA would not pay any transaction costs, including more
expensive mutual funds that were not in its clients’ best interest.
82. CIRA’s failures to disclose this information were omissions of material fact
which were required to be disclosed to CIRA’s advisory clients, and CIRA acted at least
negligently in failing to disclose such information.

22
83. From at least January 2014 to at least December 2016, CIRA allocated hundreds
of thousands of mutual fund transactions in wrap accounts to NTF mutual fund share classes.  As
a result, CIRA avoided paying millions of dollars in transaction fees.
84. Further, from at least January 2014 to the present, when CIRA invested its wrap
account advisory clients’ assets in higher-cost NTF mutual funds despite the availability of a
lower-cost option, CIRA acted at least negligently in breaching its duty of care to act in the best
interest of its clients.  When CIRA invested wrap account clients in higher-cost NTF mutual
funds when lower-cost share classes of the same mutual fund were available, CIRA also acted at
least negligently in failing to seek best execution for its clients.
85. Beginning in or about December 2016, CIRI moved to an asset-based fee
arrangement with at least Clearing Broker 1 and Clearing Broker 2.  However, CIRA has kept at
least some wrap clients invested in more expensive share classes that it had bought as part of the
NTF mutual fund program, when lower-cost share classes of the same mutual fund have
remained available and are more beneficial to clients.  By doing so CIRA has continued to at
least negligently fail to act in its clients’ best interest in violation of its duty of care.
VI. CIRA Violated Its Fiduciary Duty When Converting Clients to Wrap Accounts

86. Beginning in July 2017, CIRA repeatedly violated its fiduciary duty to clients by
converting certain traditional accounts to wrap accounts without providing clients with full and
fair disclosure concerning the conversions and instead providing false and misleading
information regarding the necessity for the conversions.  CIRA also failed to disclose that it had
a financial incentive to convert clients from traditional accounts to wrap accounts given that
CIRA collected higher advisory fees from wrap accounts.  Further, CIRA violated its fiduciary
duty by failing to adequately determine, and failing to provide adequate training, educational

23
information, or guidance to its IARs regarding how to determine whether the conversion was in
each client’s best interest.
87. In April 2016, the United States Department of Labor issued a final regulation
(effective in June 2017) that imposed a fiduciary duty on investment advisers who advised
clients with regards to pension and retirement funds (the “Fiduciary Rule”).
88. Beginning in July 2017, CIRA sent notification letters to two categories of clients
advising them of changes in the fee structure of their accounts.  Those two categories of clients
included (1) those who held qualified (i.e., retirement) discretionary accounts and (2) those who
held both qualified and non-qualified (i.e., non-retirement) discretionary accounts.
89. The letters informed these clients that, in response to the Fiduciary Rule, “CIRA
has created [a new wrap program] for advisor-direct discretionary level fee accounts that
provides greater fee transparency and a tiered program fee schedule.”  The letters set forth a fee
schedule that would be “effective” on a date certain, and noted that “[t]his change in fees may
increase or decrease the total account fee deducted from your account.”  The letters closed by
stating: “If you have questions regarding the change in fees to your account, please contact your
financial advisor prior to [the effective date referenced in the letters].”
90. On or about the effective date specified in the letters, CIRA converted many of
the recipients’ advisory accounts – including, as applicable, non-retirement accounts – to wrap
accounts and began charging clients an additional wrap fee pursuant to the newly-disclosed fee
schedule.  CIRA converted thousands of clients with traditional non‐retirement accounts to wrap
accounts.
91. At the time of these letters, CIRA knew, or should have known, that non-
retirement accounts would not be affected by the Fiduciary Rule.  Nevertheless, CIRA also

24
elected to convert to wrap accounts the non-retirement accounts of clients who also held
retirement accounts.
92. Client accounts that were invested in higher-cost NTF mutual funds before the
wrap account conversion remained in those mutual funds despite CIRA assuming responsibility
for paying transaction fees as part of the wrap accounts.  This occurred even when lower-cost
mutual fund share classes of the same funds were available.
93. CIRA violated its fiduciary duty to clients in numerous ways by converting
retirement and non-retirement accounts to wrap accounts pursuant to these notification letters:
94. First, CIRA did not provide full and fair disclosure regarding clients’ options as
to conversion (as discussed below).  Accordingly, CIRA’s clients were not provided sufficient
and accurate information necessary to provide informed consent to allow for an amendment of
their advisory agreements and a change of their fee structure.  CIRA also failed to disclose to
clients that they could elect not to convert any or all of their accounts to wrap accounts.
95. Second, although the letters stated that clients’ “fees may increase or decrease,”
CIRA did not provide any information for determining whether, and how, the proposed change
would impact the fees each client paid.
96. Third, the letters claimed that the changes were “necessary” to comply with the
Fiduciary Rule requirement that all fees and commissions be clearly disclosed to clients.
However, this statement was materially false and misleading as it applied to non-retirement
accounts given that the Fiduciary Rule did not affect those accounts.
97. Fourth, CIRA failed to disclose that it had a financial incentive to convert clients
from traditional accounts to wrap accounts given that CIRA collected higher advisory fees from
wrap accounts.

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98. Fifth, there was no basis for CIRA to conclude that it was in each client’s best
interests to convert non-retirement accounts to wrap accounts simply because the account owner
happened to also own a retirement account advised by CIRA.  In addition to converting all
retirement accounts and non-retirement accounts owned by clients who held retirement accounts,
CIRA allowed its IARs at this time to convert any other non-retirement accounts to wrap
accounts.  CIRA, however, did not provide adequate training, educational information, or
guidance to its IARs regarding how to determine whether the conversion was in each client’s
best interest.  Further, neither CIRA nor its IARs performed meaningful client-by-client analysis
to determine that conversion was in the best interest of each affected client.
99. As a result of CIRA’s conversion of the above-referenced accounts to wrap
accounts, clients paid more in advisory fees than they would have had they not been converted to
wrap accounts, and in many cases CIRA failed to act in clients’ best interests in making the
conversion.
100. These disclosure failures were materially false, misleading, and/or were omissions
of material fact which were required to be disclosed to CIRA’s advisory clients, and CIRA acted
at least negligently regarding the disclosures.  CIRA also was at least negligent in violating its
duty of care to clients by failing to adequately determine whether the conversion was in each
client’s best interest.
VII.     CIRA Failed to Disclose Its Conflicts of Interest Relating to CIRI’s Forgivable
Loan Program

101. From at least January 2014 to March 2018, CIRA failed to disclose, or adequately
disclose, to its clients CIRI’s forgivable loan program (“Forgivable Loans”) and the associated
conflicts of interest.

26
102. Since at least January 2014, CIRI has offered CIRA IARs five-year Forgivable
Loans totaling millions of dollars.  IARs typically used the Forgivable Loans to assist with costs
associated with transitioning from their prior firm to CIRA.  CIRI also offered to cancel, or
forgive, the Forgivable Loans based on certain criteria, such as maintaining certain asset levels
and tenure with CIRA.
103. The Forgivable Loans presented a conflict of interest in that CIRA IARs who
received Forgivable Loans had a financial incentive to maintain a relationship with CIRI and
recommend CIRI to clients in order to ensure the loans were forgiven.  In particular, the CIRA
IARs received compensation from CIRI in the form of forgiveness of the Forgivable Loans,
while at the same time recommending CIRI as an introducing broker.
104. In its February 2017 Brochure, CIRA first disclosed that CIRA IARs “may”
receive Forgivable Loans from CIRI, and that “[t]he receipt of a loan from [CIRI] presents a
conflict of interest in that the CIRA Advisor Representative may have a financial incentive to
maintain a relationship with [CIRI] and recommend [CIRI] to clients.” (Emphasis added).
105. However, this disclosure was inadequate because CIRA IARs did receive such
Forgivable Loans from CIRI, and because the CIRA IARs did have a financial incentive to
maintain a relationship with CIRI and recommend CIRI to clients.
106. CIRA’s failures to disclose, or adequately disclose, the conflicts associated with
the Forgivable Loans were omissions of material fact, CIRA was required by law to fully
disclose its conflicts of interest to its advisory clients, and CIRA acted at least negligently in
failing to disclose such information.

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VIII.   CIRA Failed to Adopt and Implement Required Written Policies and Procedures
107. CIRA failed to adopt and implement written policies and procedures reasonably
designed to prevent violations of the Advisers Act in connection with its investment selection,
selection of (and conversion of) account type for clients, making recommendations of
investments that were in the best interests of its advisory clients, and disclosure of conflicts of
interest.
108. While CIRA had a general written policy for disclosing and remediating conflicts
of interest, this policy did not address investment selection practices, and it was not implemented
so that CIRA made adequate disclosures regarding conflicts created by CIRI’s receipt of revenue
sharing payments, CIRA’s avoidance of transaction costs, CIRA’s selection of the wrap program
for clients, and the forgivable loan program.
109. While CIRA also had a general written policy to seek best execution for its
clients, including as to mutual funds, CIRA failed to implement that policy in the context of its
investment selection practices, and in particular selecting mutual funds, sweep funds, and share
classes that were in the best interests of its clients.  CIRA also failed to evaluate existing client
holdings during the account review process to determine whether a more favorable mutual fund,
sweep fund, or share class was available subsequent to the initial purchase.
110. CIRA also lacked written policies and procedures concerning the evaluation and
selection of account types for clients, such that clients would be placed and held in accounts that
were most appropriate for their needs.
111. Therefore, CIRA failed to adopt and implement written policies and procedures
reasonably designed to prevent Advisers Act violations.

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COUNT I

Violation of Section 206(2) of the Advisers Act
(Against Defendant CIRA)
112. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference.
113. CIRA is an investment adviser defined by Section 202(a)(11) of the Advisers Act
[15 U.S.C. § 80b-2(a)(11)].
114. CIRA, at least negligently and in violation of the applicable standard of care,
engaged in transactions, practices, or courses of business that operated as a fraud or deceit upon
its advisory clients.
115. By engaging in the conduct described above, CIRA, while acting as an investment
adviser, directly or indirectly, by use of the mails or means and instrumentalities of interstate
commerce, engaged in transactions, practices, and courses of businesses which operated as a
fraud or deceit upon its advisory clients.
116. By reason of the foregoing, CIRA violated, and unless enjoined there is a
reasonable likelihood that it will continue to violate, Section 206(2) of the Advisers Act [15
U.S.C. §§ 80b-6(2)].
COUNT II

Violation of Section 206(4) of the Advisers Act & Rule 206(4)-7 Thereunder
(Against Defendant CIRA)
117. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference.
118. Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] provides that it is
unlawful for an investment adviser to engage in an act, practice, or course of business which is
fraudulent, deceptive, or manipulative.  It further states that the SEC shall issue rules to define
and prescribe measures to prevent such misconduct.  Rule 206(4)-7 issued under the Advisers

29
Act [17 C.F.R. § 275.206(4)-7] requires, among other things, that investment advisers adopt and
implement written policies and procedures reasonably designed to prevent violations of the
Advisers Act and its rules.  Investment advisers must also review the adequacy of those policies
and procedures and the effectiveness of their implementation, at least annually.
119. CIRA failed to adopt and implement written policies and procedures reasonably
designed to prevent its violations of the Advisers Act.
120. By reason of the foregoing, CIRA has directly or indirectly violated, and unless
enjoined will likely again violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and
Rule 206(4)-7 thereunder [17 C.F.R. § 275.206(4)-7].
COUNT III
(Against Relief Defendant CIRI)
121. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference.
122. CIRI received NTF and sweep revenue sharing payments from the Clearing
Brokers to which it does not have any legitimate claim, as a result of CIRA’s violations of
Section 206(2) and 206(4) of the Adviser Act and Rule 206(4)-7 thereunder.
123. CIRI obtained these ill-gotten gains and/or unjust enrichment described above as
part, and in furtherance, of the securities laws violations alleged in this Complaint, under
circumstances in which it is not just, equitable, or conscionable for it to retain the funds.

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PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that this Court:
I.
(Injunctive Relief Against Future Securities Law Violations)
Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil
Procedure, permanently restraining and enjoining CIRA and its officers, agents, servants,
employees, attorneys, and those persons in active concert or participation with it who receive
actual notice by personal service or otherwise, from further violating Sections 206(2) and 206(4)
of the Advisers Act and Rule 206(4)-7 thereunder [15 U.S.C. §§ 80b-6(2), 80b-6(4), and 17
C.F.R. § 275.206(4)-7].
II.
(Disgorgement)
Order CIRA and CIRI to disgorge any and all ill-gotten gains and/or unjust enrichment,
together with pre-judgment interest, received directly or indirectly from the activities set forth in
this Complaint.
III.
(Civil Penalties)
 Order CIRA to each pay an appropriate civil penalty pursuant to Section 209(e) of the
Advisers Act [15 U.S.C. § 80b-9(e)].
IV.
(Retention of Equitable Jurisdiction)
Retain jurisdiction of this action in accordance with the principles of equity and the
Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and

31
decrees that may be entered or to entertain any suitable application or motion for additional relief
within the jurisdiction of this Court.
V.
(Other Relief)
Grant such other relief as this Court may deem just or appropriate.
JURY DEMAND

The SEC demands a trial by jury on all claims so triable.

Dated: March 1, 2022

                                                                              Respectfully                                                                              submitted,

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION

/s/ Timothy J. Stockwell
TIMOTHY J. STOCKWELL
Trial Attorney
DAVID F. BENSON
Senior Attorney
JEFFREY A. SHANK
Assistant Regional Director
175 West Jackson Boulevard, Suite 1450
Chicago, Illinois 60604
Telephone: (312) 596-6049
Facsimile: (312) 353-7398
Email: [email protected]

Attorneys for Plaintiff United States Securities
and Exchange Commission

IN THE UNITED STATES DISTRICT COURT 
FOR THE SOUTHERN DISTRICT OF IOWA 

CENTRAL DIVISION 

UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION, 

Plaintiff, 
 

vs. 

CAMBRIDGE INVESTMENT RESEARCH 
ADVISORS, INC., 

Defendant, and 

CAMBRIDGE INVESTMENT RESEARCH, 
INC., 

Relief Defendant. 

  
 
 
Case No.: 22-cv-71 
 
 
 

 

COMPLAINT 

Plaintiff, the United States Securities and Exchange Commission (the “SEC”), alleges as 

follows: 

SUMMARY 

1. Defendant Cambridge Investment Research Advisors, Inc. (“CIRA”) is an SEC-

registered investment adviser.  Relief Defendant Cambridge Investment Research, Inc. (“CIRI”) 

is an SEC-registered broker-dealer.  CIRA and CIRI are affiliates: they each are wholly-owned 

subsidiaries of Cambridge Investment Group, Inc. (“CIGI”) and have the same board of directors 

and key executives.   

2. As an investment adviser, CIRA owes its advisory clients a fiduciary duty to, 

among other things, act in its clients’ best interests, seek best execution of a client’s transactions, 

and fully and fairly disclose all material facts about the advisory relationship, including 

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disclosing any conflicts of interest that might cause CIRA to put its own interests before those of 

its clients.  CIRA’s clients paid it an advisory fee in exchange for CIRA selecting and managing 

their investments in a manner consistent with its fiduciary duty. 

3. As alleged in this Complaint, CIRA breached its fiduciary duty and regularly and 

repeatedly put its financial interests ahead of its clients.  CIRA also continuously failed to 

disclose to its clients material facts about its conflicts of interest, including that some investment 

choices generated additional revenue for its affiliate CIRI, and/or permitted CIRA to avoid 

paying fees, while other investment choices would have generated much less or no revenue, 

and/or the paying of fees.  In many cases these other investment choices were less expensive, and 

therefore more beneficial, for CIRA’s clients.    

4. The undisclosed conflicts of interest at issue in this case created incentives for 

CIRA to select and hold investments for advisory clients that financially benefited CIRA and 

CIRI over the interests of CIRA’s clients, including the incentive to select and hold investments 

that were more expensive for clients.   

5. CIRA and CIRI, acting as CIRA’s affiliated broker-dealer, collectively benefited 

by millions of dollars as a result of CIRA breaching its fiduciary duty and defrauding its clients.     

6. Over the course of several years, CIRA defrauded its advisory clients and/or 

repeatedly breached its fiduciary duty that it owed to them in five primary ways: 

7. First, from at least January 2014 and, in many cases, continuing to the present, 

CIRA invested clients in certain mutual funds, including “no transaction fee” (“NTF”) mutual 

funds and money market cash sweep funds (“sweep funds”), that generated, or had the potential 

to generate, revenue for CIRI from clearing brokers.  CIRI’s revenue sharing agreements with 

the clearing brokers created financial incentives for CIRA to select investments that would lead 

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3 

to greater compensation to CIRI, but that were not in the best interests of CIRA’s clients.  CIRA 

did not adequately disclose all material facts regarding the conflicts of interest that arose when it 

invested its advisory clients’ assets in more expensive NTF mutual funds and sweep funds that 

would generate revenue for CIRI, while other less expensive options were available to clients 

that would not provide that additional compensation.   

8. During this same time period, CIRA also failed to act consistent with its duty of 

care obligations to its clients, which requires that CIRA provide advice in the best interest of 

clients, by failing to seek best execution and evaluate whether clients should be placed in and/or 

moved to a lower-cost fund.  Moreover, CIRA’s investment of clients in more expensive funds 

when lower-cost options were available, and failure to assess whether clients should be 

converted to lower-cost options, is contrary to CIRA’s disclosures to clients that it would 

“endeavor at all times to put the interest of [its] clients ahead of [its] own.” 

9. Second, from at least January 2014 to at least December 2016, CIRA had a 

financial incentive to select NTF mutual funds for its “wrap account” advisory clients (i.e., 

clients who paid CIRA an all-in “wrapped” advisory fee that covered not only investment advice, 

but also any transaction fees) for which CIRA did not have to pay transaction fees, rather than 

lower-cost options for which CIRA would have to pay transaction fees.  To the present, CIRA 

has invested and held wrap account clients in more expensive NTF mutual funds even when 

lower-cost options were available, even after CIRI moved to an asset-based fee model for 

brokerage services in December 2016 that eliminated transaction fees.   

10. From at least January 2014 to at least December 2016, CIRA violated its fiduciary 

duty to clients by failing to disclose its conflicts of interest associated with recommending that 

wrap account clients purchase NTF mutual funds for which CIRA would avoid paying 

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transaction fees.  From at least January 2014 to the present, CIRA also violated its fiduciary duty 

to clients by (1) investing wrap account clients in NTF funds that were not in the clients’ best 

interest; (2) failing to seek best execution; and (3) failing to evaluate whether clients should be 

moved to a lower-cost mutual fund option. 

11. Third, beginning in July 2017 and continuing through the present, CIRA 

repeatedly violated its fiduciary duty to clients by converting certain traditional accounts to wrap 

accounts without providing clients with full and fair disclosure concerning the conversions, and 

instead providing false and misleading information regarding the necessity for the conversions.  

CIRA also failed to disclose that it had a financial incentive to convert clients from traditional 

accounts to wrap accounts given that CIRA collected higher advisory fees from wrap accounts.  

Further, CIRA violated its fiduciary duty by failing to adequately determine whether the 

conversion was in each client’s best interest consistent with its duty of care. 

12. Fourth, from at least January 2015 to March 2018, CIRA failed to adequately 

disclose to its clients CIRI’s program of giving forgivable loans to CIRA investment adviser 

representatives and the associated conflicts of interest. 

13. Fifth, from at least January 2014 to the present, CIRA failed to adopt and 

implement written policies and procedures reasonably designed to prevent violations of the 

Investment Advisers Act of 1940 (“Advisers Act”) in connection with its investment selection, 

selection of account type for clients, making recommendations of investments that were in the 

best interests of its advisory clients, and disclosure of conflicts of interest. 

14. By engaging in the conduct alleged herein, CIRA violated Sections 206(2) and 

206(4) of the Advisers Act [15 U.S.C. §§ 80b-6(2) and 80b-6(4)], and Rule 206(4)-7 thereunder 

[17 C.F.R. § 275.206(4)-7].  The SEC requests, among other things, that this Court enjoin CIRA 

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5 

from committing further violations of the federal securities laws as alleged in this Complaint, 

and order CIRA to pay monetary penalties based upon these violations.  The SEC also requests 

that CIRA and relief defendant CIRI disgorge all ill-gotten gains and/or unjust enrichment 

received directly or indirectly, with pre-judgment interest thereon, as a result of the alleged 

violations.   

JURISDICTION AND VENUE 
 

15. The Court has jurisdiction over this action pursuant to Sections 209(d), 209(e)(1), 

and 214 of the Advisers Act [15 U.S.C. §§ 80b-9(d), 80b-9(e)(1), and 80b-14]. 

16. Venue is proper in this district under Section 214 of the Advisers Act [15 U.S.C. § 

80b-14] and 28 U.S.C. § 1391(b)(1) and (2) because, among other things, CIRA inhabits, resides, 

and transacts business in this district, and certain of the transactions, acts, practices and courses 

of conduct constituting violations of the federal securities laws occurred within this district. 

17. CIRA has, directly or indirectly, made use of the means or instrumentalities of 

interstate commerce, of the mails, or of the facilities of a national securities exchange in 

connection with the transactions, acts, practices and courses of business alleged in this 

complaint. 

THE DEFENDANT 

18. Defendant CIRA, headquartered in Fairfield, Iowa, has been registered with the 

SEC as an investment adviser since at least February 2005.  CIRA is a wholly-owned subsidiary 

of CIGI.  CIRA is in the business of providing investment advice concerning securities for 

compensation.  As of June 2021, CIRA has more than 3,000 employees, more than 3,300 

investment adviser representatives (“IARs”), more than 211,000 advisory clients (who 

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collectively hold more than 337,000 accounts), and more than $68.5 billion in regulatory assets 

under management, the majority of which are associated with discretionary client accounts.   

19. CIRA entered into agreements to toll or suspend the running of any statute of 

limitations for the period from January 7, 2019 through March 1, 2022.   

THE RELIEF DEFENDANT 

20. Relief Defendant CIRI, also headquartered in Fairfield, Iowa, has been registered 

with the SEC as a broker-dealer since 1995.  Prior to February 2005, CIRI was dually registered 

as a broker-dealer and investment adviser, and CIRA’s advisory services were conducted under 

CIRI in its former capacity as an investment adviser. CIRI is also a wholly-owned subsidiary of 

CIGI.  CIRI and CIRA have the same board of directors, and key executives hold the same 

positions, roles, and responsibilities at both firms, including compliance relating to the 

misconduct alleged in this Complaint.  Some CIRA IARs are also licensed as registered 

representatives of CIRI.  Because CIRI employees regularly perform services for CIRA and vice-

versa, CIRI, CIRA, and another related third party entity have entered into an expense-sharing 

agreement to apportion certain costs and expenses, including administrative and overhead 

expenses, between CIRI and CIRA.   

21. CIRI entered into agreements to toll or suspend the running of any statute of 

limitations for the period from September 10, 2020 through March 1, 2022.   

22. CIRI, as a relief defendant, has no legitimate claim to the revenue sharing it 

received as alleged in the Complaint because it obtained the payments as a result of CIRA’s 

fraudulent conduct. 

 

 

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FACTUAL ALLEGATIONS 

I. CIRA’s Advisory Services 
 

23. CIRA provides investment advisory services to a variety of clients, including 

individual retail clients who rely on investments in their CIRA advisory accounts for, among 

other things, income and retirement.  CIRA’s advisory services include both investment advice 

and the ongoing management of clients’ investment portfolios.  CIRA provides advisory services 

through over 3,300 IARs. 

24. CIRA is an “investment adviser” within the meaning of Section 202(a)(11) of the 

Advisers Act [15 U.S.C. § 80b-2(a)(11)] because it is engaged in the business of providing 

investment advice as to the value of securities and as to the advisability of investing in, 

purchasing, and selling securities. 

25. In exchange for these advisory services, CIRA generally charges its clients 

advisory fees equal to a percentage of the dollar amount of the client’s assets under management.  

These advisory fees are periodically deducted from the clients’ advisory accounts. 

26. CIRA advises clients through both traditional management programs and wrap 

programs.  Under the traditional management programs, there are two separate types of fees 

directly charged to clients: an investment advisory fee for advisory services charged by CIRA, 

and a ticket charge, or transaction fee, for each transaction (i.e., buy/sell/exchange) in the client’s 

account charged by CIRI.   

27. Under a wrap program, advisory services and transaction services are provided for 

a single fee that CIRA directly charges the client.  Wrap program clients pay CIRA an advisory 

fee based on the amount of the clients’ assets CIRA advises, but do not pay separate transaction 

fees for trades.  Rather, clients pay an annual fee that covers the costs of several services 

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“wrapped” together, including transaction fees.  CIRA is responsible for paying any transaction 

fees charged for trades made in wrap accounts. 

28. CIRA advises a majority of its clients (both in terms of regulatory assets under 

management and number of accounts) through its wrap programs.     

29. CIRA typically manages the client accounts in its traditional and wrap programs 

on a discretionary basis, meaning that advisory clients have granted CIRA the authority to trade 

the assets in their advisory accounts without CIRA needing to obtain specific approval from its 

clients for each transaction. 

30. CIRA typically invests clients’ wrap accounts in mutual funds, stocks, and bonds, 

with a heavy emphasis in mutual funds.  As described more below, mutual funds generally have 

their own fees that come out of the funds’ assets. 

31. As a registered investment adviser with the SEC, CIRA is required to file and 

update, at least annually, disclosures in a uniform registration application called a Form ADV. 

As part of this application, CIRA is required to create an SEC-mandated Form ADV Part 2A or 

brochure (“Brochure”), containing certain disclosures about its advisory business.  At least once 

a year, from at least 2013 through 2021, CIRA filed a Brochure with the SEC, posted a copy of 

the latest Brochure to its publicly-available website, and provided to every advisory client a 

summary of material changes to the Brochure. 

32. As an investment adviser, CIRA is a fiduciary for its advisory clients.  As such, 

CIRA owes its advisory clients an affirmative duty of utmost good faith, is obligated to provide 

full and fair disclosure of all material facts, has an affirmative obligation to employ reasonable 

care to avoid misleading its clients, has a duty to act in its clients’ best interests, and has a duty to 

seek best execution of a client’s transactions.  CIRA’s duty to disclose all material facts includes 

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a duty to tell clients about all of its actual or potential conflicts of interest that might influence 

CIRA or its IARs to render investment advice that is not disinterested. 

33. CIRA acknowledges this fiduciary duty in, among other places, its Brochure, 

which CIRA is required to provide to clients.   

II. Background on Mutual Funds and Money Market Sweep Funds 
 

34. Mutual funds are investment products often used by individuals.  A mutual fund 

pools money from many investors and invests the money in securities or other assets.  A mutual 

fund has various expenses that are paid from fund assets.  These internal expenses are reflected 

in the fund’s “expense ratio.”  Such expenses include fees paid to the adviser that manages the 

fund, operational expenses, and fees paid to the brokers that sell shares of, and provide services 

to, the mutual fund.  These are ongoing fees and expenses charged throughout the life of the 

mutual fund investment.  Fees and expenses are an important consideration in selecting a mutual 

fund because these charges lower an investor’s returns. 

35. There are many types of mutual funds that cover a variety of investment 

objectives and with different portfolios of securities.  Each mutual fund often has multiple, 

different “share classes.”  Each share class of a mutual fund represents an interest in the exact 

same portfolio of securities, with the only principal difference typically being the cost to the 

investor.  An individual investor may pay more, or less, for precisely the same mutual fund 

investment, depending on the share class.  Share classes that have higher costs, or expense ratios, 

generally have lower returns than share classes with lower expense ratios. 

36. Additionally, when investors purchase or sell mutual funds through clearing 

brokers – i.e., broker-dealers that maintain custody of investor assets and execute all securities 

trades – the clearing brokers may or may not charge a transaction fee.  Clearing brokers 

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generally offer a “no transaction fee” (“NTF”) program, through which investors can purchase 

and sell from a menu of mutual funds without a transaction fee.  The clearing brokers also offer a 

“transaction fee” (“TF”) program, through which investors can purchase and sell from a different 

menu of mutual funds, with a transaction fee. 

37. In general, NTF mutual funds have higher internal expense ratios than TF mutual 

funds.  In many instances, the NTF mutual funds also have TF share classes available with lower 

expense ratios but that charge a transaction fee.  It is often in the client’s best interest to be in the 

mutual fund share class with the lowest expense ratio, even when the client pays a transaction 

fee. 

38. When a client is in a wrap account (i.e., an account for which CIRA, rather than 

the client, is responsible for paying transaction fees), it is in the client’s best interest to be in the 

mutual fund share class with the lower expense ratio.  A CIRA client who held NTF mutual 

funds in a wrap account would pay higher total annual fund expenses over time – and would 

therefore earn lower returns – than one who held a lower-cost share class of the same fund.   

39. CIRA also recommended to eligible clients different cash sweep account 

programs offered by CIRI.  A cash sweep account is an interest-bearing bank account or money 

market mutual fund used by broker-dealers to hold cash (e.g., incoming cash deposit, dividends, 

or certain investment returns) until the investor or adviser decides how to invest the money.  The 

cash is automatically deposited, or “swept,” into the cash sweep account.   

40. A money market mutual fund is a type of mutual fund that generally invests in 

short-term, highly liquid securities with limited credit risk.  As with other mutual funds, money 

market mutual funds may offer investors different share classes.  Each share class represents an 

interest in the same portfolio of securities with the same investment objective, with the primary 

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difference among the share classes being the fee structure.  CIRA invested clients in money 

market funds (“sweep funds”) as part of the cash sweep account program. 

III. The Role of CIRI and the Clearing Brokers 

41. CIRA typically required its clients to use CIRI as an introducing broker, meaning 

CIRI acted as an intermediary by taking orders from CIRA regarding the purchase or sale of 

securities, and then contracted with a clearing broker who actually received payments and 

securities and executed trades. 

42. Since at least January 2014, CIRI has contracted with two firms – Clearing Broker 

1 and Clearing Broker 2 – to provide custody and clearing services for the vast majority of 

CIRI’s customers, including CIRA advisory clients.  These firms maintain custody of investor 

assets and execute all securities trades for CIRA accounts, including wrap accounts.  CIRA 

discloses in its Brochure that “[b]ecause CIRA and [CIRI] are under common ownership and 

have mutual executive officers and control persons, the decision to use [Clearing Broker 1] and 

[Clearing Broker 2] is mutually determined by both [CIRI] and CIRA.”  Clearing Broker 1 and 

Clearing Broker 2 offer to CIRA clients both an NTF and TF mutual fund program. 

43. Additionally, from at least January 2014 to at least May 2019, CIRA and CIRI 

had agreements in place with another clearing firm – Clearing Broker 3 (collectively, with 

Clearing Broker 1 and Clearing Broker 2, the “Clearing Brokers”) – to, among other things, 

serve as an introducing and clearing broker for certain CIRA accounts.  Clearing Broker 3 also 

offered to CIRA clients similar NTF and TF mutual fund programs.  

 

 

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IV. CIRA Breached Its Fiduciary Duty to Clients in Connection with CIRI’s Receipt of 
Revenue Sharing 

 
44. From at least January 2014 through the present, CIRI had agreements to receive 

compensation from one or more of the Clearing Brokers as a direct result of CIRA investing its 

advisory clients in certain NTF mutual funds and/or sweep funds that were offered by the 

Clearing Brokers.  As a result of these arrangements, CIRA’s interests were in conflict with its 

clients’ interests.  The arrangements created financial incentives for CIRA to select NTF mutual 

funds and sweep funds that would lead to greater compensation to its affiliated broker-dealer 

CIRI, and often that were not in the best interests of CIRA’s clients.   

45. CIRA either did not disclose, or did not adequately disclose, these material 

conflicts to its advisory clients.  CIRA’s failures to disclose this information were omissions of 

material fact, CIRA was required by law to fully disclose its conflicts of interest to its advisory 

clients, and CIRA was at least negligent in failing to disclose such information.  Certain other 

disclosures were materially false and misleading, and CIRA also acted at least negligently 

regarding those disclosures. 

46. In addition, from at least January 2014 to the present, CIRA invested and/or held 

client assets in NTF mutual funds and sweep funds, including those that generated revenue 

sharing for CIRI, but which were more expensive than other shares classes of the same fund, or 

in the case of sweep funds more expensive than other similar funds.  By doing so CIRA at least 

negligently breached its fiduciary duty to its clients by failing to act in the clients’ best interests 

and/or failing to seek best execution. 

 

 

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A. CIRI’s Revenue Sharing with the Clearing Brokers 

47. When CIRA purchased or sold NTF mutual funds for clients, clients did not pay a 

transaction fee, but they did pay fees for their share of mutual fund expenses (e.g., expense 

ratios).  The Clearing Brokers received a certain percentage of revenue from the NTF mutual 

funds by way of recurring payments paid by the mutual funds in exchange for being offered by 

the Clearing Broker as an NTF mutual fund.  The Clearing Brokers then shared a portion of the 

fees it received with CIRI. 

48. Since at least January 2014, under agreements between CIRI and the Clearing 

Brokers, the Clearing Brokers shared these recurring fees, or mutual fund revenue, with CIRI 

based on CIRA’s client assets invested in NTF mutual funds (“NTF revenue sharing” or “NTF 

revenue”).  However, the Clearing Brokers would not pay this revenue sharing to CIRI if CIRA’s 

client assets were invested in TF mutual funds or certain fund families.   

49. CIRI stopped receiving NTF revenue from Clearing Broker 3 in May 2019 when 

CIRA ended its relationship with Clearing Broker 3.  In August 2019, CIRI amended its 

agreement with Clearing Broker 1 to provide that CIRI would stop receiving NTF revenue, and 

CIRI may have stopped receiving NTF revenue from Clearing Broker 2 at some point in 2019. 

50. Also since at least January 2014 through at least May 2020, CIRI received 

revenue from Clearing Broker 2 based on CIRA client assets invested in certain sweep funds that 

Clearing Broker 2 offered as sweep account investment options (“sweep revenue sharing” or 

“sweep revenue”).  CIRI also received sweep revenue sharing from Clearing Broker 1 from at 

least September 2016 through at least April 2020.  CIRI maintains these sweep revenue sharing 

agreements to the present.  The revenue sharing payments are generated from a portion of the 

assets on the uninvested cash in the clients’ accounts. 

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51. From at least January 2014 through the present, CIRA has placed and/or held 

clients’ assets in NTF mutual funds, including funds that resulted in NTF revenue to CIRI, even 

when other lower-cost share classes of the same mutual funds were available to clients.  During 

this time, CIRI has received millions of dollars in NTF revenue from the Clearing Brokers based 

on CIRA clients’ investments. 

52. Further, from at least January 2014 through the present, CIRA has placed and/or 

held clients’ assets in sweep funds, including funds that resulted in sweep revenue sharing 

payments to CIRI, even when other lower-cost sweep funds, or share classes of the same funds, 

were available to clients.  Indeed, CIRA selected sweep funds that resulted in sweep revenue as 

the “default” sweep fund option for client accounts.  During this period, CIRI has received 

millions of dollars in sweep revenue from Clearing Broker 1 and Clearing Broker 2 based on 

CIRA clients’ investments in sweep funds. 

B. CIRI’s Receipt of Revenue Sharing Created Significant Conflicts of Interest 
 
53. As a result of CIRI’s NTF and sweep revenue sharing arrangements with the 

Clearing Brokers, CIRA’s interests were in conflict with its clients.  The revenue sharing 

arrangements created financial incentives for CIRA to invest clients in NTF mutual funds and 

sweep funds that would lead to greater revenue sharing for CIRI.  This was a material conflict of 

interest for CIRA, which was exacerbated by the fact that the NTF mutual funds and sweep 

funds that generated revenue for CIRI were typically more expensive than other available similar 

options, and thus not in the best interests of CIRA’s advisory clients. 

54. Regarding NTF revenue sharing, CIRA had a material conflict of interest because 

it had a financial incentive to select and hold more expensive mutual funds for clients, including 

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NTF mutual funds, when lower-cost share classes of the same mutual fund were available to 

clients, but for which CIRI received less or no NTF revenue. 

55. CIRI’s NTF revenue sharing agreements with Clearing Broker 1 was also limited 

to certain mutual funds, meaning that CIRA had an incentive to choose certain mutual funds that 

generate revenue sharing over others that did not.  For example, CIRA could purchase or sell 

Fidelity mutual funds for its clients through Clearing Broker 1’s NTF program, but these 

investments did not result in NTF revenue sharing with CIRI, whereas CIRI received revenue for 

NTF mutual funds from other fund families. 

56. Regarding sweep revenue sharing, CIRA had a conflict of interest because it had 

an incentive to recommend that clients hold uninvested cash in sweep funds that generated 

revenue sharing over other non-revenue generating investments.   

57. Further, CIRA had a financial incentive to select and hold more expensive sweep 

funds for clients that generated revenue, even when lower-cost sweep funds, or lower-cost share 

classes of the same fund, that did not generate revenue sharing were available to clients.   

58. In the case of Clearing Broker 1, the sweep fund share classes that resulted in 

sweep revenue were more expensive and lower-yielding than other available share classes of the 

same funds that did not result in CIRI receiving sweep revenue.  With Clearing Broker 2, the 

revenue-generating sweep funds were more expensive and lower-yielding than similar, available 

funds that did not result in CIRI receiving sweep revenue. 

59. The millions of dollars of NTF and sweep revenue that CIRI received from the 

Clearing Brokers was sufficient to create meaningful incentives for CIRA to invest its clients’ 

assets in investments that were more profitable to CIRI, and more expensive for clients. 

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C. CIRA Failed to Adequately Disclose the Revenue Sharing Conflicts of 
Interest to its Clients and Failed to Act in its Clients’ Best Interest 

 
60. CIRA failed to fully and fairly disclose the conflicts of interest associated with 

CIRI’s revenue sharing arrangements with the Clearing Brokers.  CIRA knew or should have 

known that it was required by law to fully disclose conflicts of interest to its advisory clients, 

including how the firm intended to address such conflicts, because, among other reasons, the 

instructions to Form ADV provided such guidance.  Yet CIRA repeatedly failed to sufficiently 

disclose these conflicts of interest to its clients and was at least negligent in doing so.  CIRA also 

failed to act consistent with its duty of care obligations to its clients regarding the revenue-

generating investments. 

1. NTF Revenue Sharing 

61. From at least January 2014 to at least August 2019, CIRA failed to adequately tell 

clients that it had incentives to invest clients in more expensive NTF mutual funds in order for 

CIRI to receive revenue, when lower-cost share classes were available for the same fund.  In 

particular, CIRA failed to disclose to clients that in many cases there were mutual funds in the 

NTF programs that had a lower-cost share class available to clients that did not result in revenue 

sharing payments to CIRA, and thus CIRA was investing clients in mutual funds that were 

contrary to the clients’ best interests.  CIRA also (1) failed to tell clients that CIRI’s NTF 

revenue sharing agreement with a clearing broker was limited to certain mutual funds and thus 

CIRA had an incentive to select those funds over others; and (2) misled clients that it would 

address the conflicts associated with investing clients in mutual funds. 

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62. From at least January 2014 through August 2019, CIRA generally disclosed that 

CIRA and CIRI had entered into revenue sharing arrangements and that such arrangements 

presented a conflict of interest.   

63. CIRA also disclosed that: (1) CIRI received “revenue sharing participation” for 

assets that were held in the NTF programs offered by Clearing Broker 1 and Clearing Broker 2; 

(2) the NTF mutual funds could be purchased “at no cost to CIRA, the CIRA Advisor 

Representative or the client”; and (3) “some mutual funds in this NTF program have higher 

internal expenses than mutual funds that are not in the NTF program.”   

64. Regarding Clearing Broker 3, during this same timeframe, CIRA generally 

disclosed that CIRI received a “fee” for “assets in certain mutual funds” held by Clearing Broker 

3, and that “[b]ecause CIRA receives an economic benefit, it has a potential conflict of interest in 

recommending to clients that they use [Clearing Broker 3] as custodian and invest their assets in 

certain mutual funds.”  It was not until March 2019, when CIRA revised its Brochure to 

specifically disclose that CIRI “receives revenue for assets in [Clearing Broker 3’s NTF mutual 

fund program], which is a conflict of interest because of the increased compensation to [CIRI].” 

65. The above disclosures regarding CIRA’s conflicts of interest between at least 

January 2014 and at least August 2019 were materially inadequate, false, and/or misleading: 

66. First, CIRA failed to adequately disclose to clients that the clients would pay the 

higher expense of being in a revenue-generating NTF mutual fund when a lower-cost share class 

of the same fund was available, and the related conflicts of interest discussed above.     

67. Second, CIRA failed to tell clients that CIRI’s NTF revenue sharing agreement 

with a clearing broker was limited to certain mutual funds, such that CIRA had an incentive to 

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invest clients in mutual funds that generated revenue sharing over other non-revenue generating 

investments. 

68. Third, from at least January 2014 to the present, when generally referencing 

CIRI’s revenue sharing arrangements, CIRA has repeatedly disclosed that it “endeavor[s] at all 

times to put the interest of [its] clients ahead of [its] own… these arrangements could affect the 

judgment of [CIRI] or its affiliated persons when recommending investment products.”  This 

disclosure falsely and misleadingly indicates that CIRA would address the conflicts associated 

with investing clients in NTF mutual funds by prioritizing clients’ best interests over its own.   

69. However, in violation of CIRA’s duty of care, CIRA invested clients in more 

expensive NTF mutual funds that generated revenue sharing even when lower-cost share classes 

of the same fund were available that, given the circumstances, would have been in the clients’ 

best interests.  By doing so CIRA also breached its fiduciary duty to seek best execution for its 

clients.  Moreover, CIRA’s continued failure to assess whether clients invested in NTF mutual 

funds should be converted to lower-cost share classes is contrary to its duty of care and 

statements that despite its conflicts of interest, CIRA would “endeavor at all times to put the 

interest of [its] clients ahead of [its] own.” 

2. Sweep Revenue Sharing 

70. From at least January 2014 to the present, CIRA failed to adequately tell clients 

that it had incentives to invest clients in certain sweep funds in order for CIRI to receive sweep 

revenue, including more expensive funds when lower-cost funds or share classes of the same 

fund were available to clients. 

71. From January 2014 to November 2018, CIRA failed to tell clients that CIRI 

received any sweep revenue sharing or otherwise disclose facts relating to its conflicts of interest 

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relating to the sweep revenue sharing.  While CIRA did provide clients with a separate disclosure 

drafted by Clearing Broker 2, the disclosure only generally described the revenue sharing 

program and stated that “[p]articipation by [CIRI] in this program is optional and that [CIRI] 

may share with [Clearing Broker 2] in such fees.” (Emphasis added).  This disclosure failed to 

inform CIRA’s clients that CIRI actually did participate in the program and did receive fees.  It 

further failed to address the availability of similar lower-cost funds and the associated conflicts 

of interest with such sweep revenue sharing. 

72. Thus, CIRA failed to disclose that the sweep revenue CIRI received created an 

incentive for CIRA, when rendering investment advice to its clients, to recommend that clients 

hold uninvested cash in sweep funds that generated revenue sharing over other non-revenue 

generating investments.  CIRA also did not disclose that these revenue-generating sweep funds 

were more expensive and often lower-yielding than other similar sweep funds or share classes of 

the same fund that were available to the clients, or that CIRA would select the more expensive 

option for clients.   

73. In November 2018, CIRA disclosed in its Brochure for the first time that CIRI 

generally received revenue from “sweep options” and that this “creates a conflict of interest due 

to the financial benefits for [CIRI].”  Beginning in March 2019, CIRA for the first time 

specifically disclosed to clients in its Brochure that CIRI received a “financial benefit” when 

clients are placed into a “money market sweep” (i.e. sweep fund), and that this represents a 

conflict of interest. 

74. However, these disclosures were inadequate because they do not disclose that the 

sweep revenue sharing created an incentive for CIRA to recommend that its clients keep money 

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in sweep funds and to purchase or hold a sweep fund that generated revenue over other non-

revenue generating and lower-cost options. 

75. Further, as referenced above, CIRA repeatedly discloses that it “endeavor[s] at all 

times to put the interest of [its] clients ahead of [its] own… these arrangements could affect the 

judgment of [CIRI] or its affiliated persons when recommending investment products.”  This 

misleadingly indicates that CIRA would address the conflict associated with investing clients in 

sweep funds by prioritizing clients’ best interests over its own.  However, in violation of CIRA’s 

duty of care, CIRA invested clients in more expensive sweep funds that generated, or have the 

potential to generate, revenue sharing even when lower-cost funds or share classes of the same 

fund were available that, given the circumstances, would have been in the clients’ best interests.  

CIRA also breached its fiduciary duty to seek best execution for its clients. 

V. CIRA Violated its Fiduciary Duty to Its Clients When Selecting Investments which 
Allowed CIRA to Avoid Paying Transaction Fees  

 
76. From at least January 2014 to at least December 2016, CIRA had a financial 

incentive to select NTF mutual funds for clients in wrap accounts rather than lower-cost share 

classes of the same fund which would require CIRA to pay transaction fees.  From at least 

January 2014 to the present, CIRA has invested and held wrap account clients in more expensive 

NTF mutual funds even when lower-cost options were available, even after CIRI moved to an 

asset-based fee model for brokerage services in December 2016 that eliminated transaction fees. 

77. From at least January 2014 to at least December 2016, CIRA violated its fiduciary 

duty to clients by failing to disclose its conflicts of interest in recommending that wrap account 

clients purchase NTF mutual funds for which CIRA would avoid paying transaction fees.  From 

at least January 2014 to the present, CIRA also violated its fiduciary duty to clients by (1) 

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investing wrap account clients in NTF mutual funds that were not in the clients’ best interest; 

(2) failing to seek best execution; and (3) failing to evaluate whether clients should be moved to 

a lower-cost mutual fund option. 

78. CIRA benefitted when a wrap account client’s trades incurred no or lower 

transaction costs because CIRA would retain a larger share of the client’s fee when it incurred 

lower out-of-pocket expenses.  In contrast, CIRA would incur more expenses (and thus retain 

less of a wrap account client’s annual advisory fee) if the client’s trades incurred higher 

transaction costs that CIRA was responsible for paying. 

79. For CIRA’s wrap accounts, since the client does not pay a separate transaction 

fee, it is in the client’s best interest to be in the mutual fund share class with a lower expense 

ratio.   

80. From at least January 2014 to at least December 2016, CIRA had a conflict of 

interest associated with its selection of NTF mutual funds for wrap accounts because it was 

responsible for paying client transaction fees.  CIRA acted in its own interest and contrary to 

clients’ interests by investing clients in wrap accounts in NTF mutual funds, whereby CIRA 

avoided paying transaction fees while subjecting its clients to higher advisory fees.   

81. In violation of its fiduciary duty, CIRA did not disclose that it had an incentive to 

select investments for which CIRA would not pay any transaction costs, including more 

expensive mutual funds that were not in its clients’ best interest. 

82. CIRA’s failures to disclose this information were omissions of material fact 

which were required to be disclosed to CIRA’s advisory clients, and CIRA acted at least 

negligently in failing to disclose such information. 

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83. From at least January 2014 to at least December 2016, CIRA allocated hundreds 

of thousands of mutual fund transactions in wrap accounts to NTF mutual fund share classes.  As 

a result, CIRA avoided paying millions of dollars in transaction fees.   

84. Further, from at least January 2014 to the present, when CIRA invested its wrap 

account advisory clients’ assets in higher-cost NTF mutual funds despite the availability of a 

lower-cost option, CIRA acted at least negligently in breaching its duty of care to act in the best 

interest of its clients.  When CIRA invested wrap account clients in higher-cost NTF mutual 

funds when lower-cost share classes of the same mutual fund were available, CIRA also acted at 

least negligently in failing to seek best execution for its clients. 

85. Beginning in or about December 2016, CIRI moved to an asset-based fee 

arrangement with at least Clearing Broker 1 and Clearing Broker 2.  However, CIRA has kept at 

least some wrap clients invested in more expensive share classes that it had bought as part of the 

NTF mutual fund program, when lower-cost share classes of the same mutual fund have 

remained available and are more beneficial to clients.  By doing so CIRA has continued to at 

least negligently fail to act in its clients’ best interest in violation of its duty of care.  

VI. CIRA Violated Its Fiduciary Duty When Converting Clients to Wrap Accounts 
 

86. Beginning in July 2017, CIRA repeatedly violated its fiduciary duty to clients by 

converting certain traditional accounts to wrap accounts without providing clients with full and 

fair disclosure concerning the conversions and instead providing false and misleading 

information regarding the necessity for the conversions.  CIRA also failed to disclose that it had 

a financial incentive to convert clients from traditional accounts to wrap accounts given that 

CIRA collected higher advisory fees from wrap accounts.  Further, CIRA violated its fiduciary 

duty by failing to adequately determine, and failing to provide adequate training, educational 

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information, or guidance to its IARs regarding how to determine whether the conversion was in 

each client’s best interest. 

87. In April 2016, the United States Department of Labor issued a final regulation 

(effective in June 2017) that imposed a fiduciary duty on investment advisers who advised 

clients with regards to pension and retirement funds (the “Fiduciary Rule”). 

88. Beginning in July 2017, CIRA sent notification letters to two categories of clients 

advising them of changes in the fee structure of their accounts.  Those two categories of clients 

included (1) those who held qualified (i.e., retirement) discretionary accounts and (2) those who 

held both qualified and non-qualified (i.e., non-retirement) discretionary accounts.   

89. The letters informed these clients that, in response to the Fiduciary Rule, “CIRA 

has created [a new wrap program] for advisor-direct discretionary level fee accounts that 

provides greater fee transparency and a tiered program fee schedule.”  The letters set forth a fee 

schedule that would be “effective” on a date certain, and noted that “[t]his change in fees may 

increase or decrease the total account fee deducted from your account.”  The letters closed by 

stating: “If you have questions regarding the change in fees to your account, please contact your 

financial advisor prior to [the effective date referenced in the letters].”   

90. On or about the effective date specified in the letters, CIRA converted many of 

the recipients’ advisory accounts – including, as applicable, non-retirement accounts – to wrap 

accounts and began charging clients an additional wrap fee pursuant to the newly-disclosed fee 

schedule.  CIRA converted thousands of clients with traditional non‐retirement accounts to wrap 

accounts. 

91. At the time of these letters, CIRA knew, or should have known, that non-

retirement accounts would not be affected by the Fiduciary Rule.  Nevertheless, CIRA also 

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elected to convert to wrap accounts the non-retirement accounts of clients who also held 

retirement accounts. 

92. Client accounts that were invested in higher-cost NTF mutual funds before the 

wrap account conversion remained in those mutual funds despite CIRA assuming responsibility 

for paying transaction fees as part of the wrap accounts.  This occurred even when lower-cost 

mutual fund share classes of the same funds were available. 

93. CIRA violated its fiduciary duty to clients in numerous ways by converting 

retirement and non-retirement accounts to wrap accounts pursuant to these notification letters: 

94. First, CIRA did not provide full and fair disclosure regarding clients’ options as 

to conversion (as discussed below).  Accordingly, CIRA’s clients were not provided sufficient 

and accurate information necessary to provide informed consent to allow for an amendment of 

their advisory agreements and a change of their fee structure.  CIRA also failed to disclose to 

clients that they could elect not to convert any or all of their accounts to wrap accounts. 

95. Second, although the letters stated that clients’ “fees may increase or decrease,” 

CIRA did not provide any information for determining whether, and how, the proposed change 

would impact the fees each client paid.   

96. Third, the letters claimed that the changes were “necessary” to comply with the 

Fiduciary Rule requirement that all fees and commissions be clearly disclosed to clients.  

However, this statement was materially false and misleading as it applied to non-retirement 

accounts given that the Fiduciary Rule did not affect those accounts. 

97. Fourth, CIRA failed to disclose that it had a financial incentive to convert clients 

from traditional accounts to wrap accounts given that CIRA collected higher advisory fees from 

wrap accounts. 

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98. Fifth, there was no basis for CIRA to conclude that it was in each client’s best 

interests to convert non-retirement accounts to wrap accounts simply because the account owner 

happened to also own a retirement account advised by CIRA.  In addition to converting all 

retirement accounts and non-retirement accounts owned by clients who held retirement accounts, 

CIRA allowed its IARs at this time to convert any other non-retirement accounts to wrap 

accounts.  CIRA, however, did not provide adequate training, educational information, or 

guidance to its IARs regarding how to determine whether the conversion was in each client’s 

best interest.  Further, neither CIRA nor its IARs performed meaningful client-by-client analysis 

to determine that conversion was in the best interest of each affected client. 

99. As a result of CIRA’s conversion of the above-referenced accounts to wrap 

accounts, clients paid more in advisory fees than they would have had they not been converted to 

wrap accounts, and in many cases CIRA failed to act in clients’ best interests in making the 

conversion. 

100. These disclosure failures were materially false, misleading, and/or were omissions 

of material fact which were required to be disclosed to CIRA’s advisory clients, and CIRA acted 

at least negligently regarding the disclosures.  CIRA also was at least negligent in violating its 

duty of care to clients by failing to adequately determine whether the conversion was in each 

client’s best interest. 

VII. CIRA Failed to Disclose Its Conflicts of Interest Relating to CIRI’s Forgivable 
Loan Program 

 
101. From at least January 2014 to March 2018, CIRA failed to disclose, or adequately 

disclose, to its clients CIRI’s forgivable loan program (“Forgivable Loans”) and the associated 

conflicts of interest.   

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102. Since at least January 2014, CIRI has offered CIRA IARs five-year Forgivable 

Loans totaling millions of dollars.  IARs typically used the Forgivable Loans to assist with costs 

associated with transitioning from their prior firm to CIRA.  CIRI also offered to cancel, or 

forgive, the Forgivable Loans based on certain criteria, such as maintaining certain asset levels 

and tenure with CIRA.   

103. The Forgivable Loans presented a conflict of interest in that CIRA IARs who 

received Forgivable Loans had a financial incentive to maintain a relationship with CIRI and 

recommend CIRI to clients in order to ensure the loans were forgiven.  In particular, the CIRA 

IARs received compensation from CIRI in the form of forgiveness of the Forgivable Loans, 

while at the same time recommending CIRI as an introducing broker.   

104. In its February 2017 Brochure, CIRA first disclosed that CIRA IARs “may” 

receive Forgivable Loans from CIRI, and that “[t]he receipt of a loan from [CIRI] presents a 

conflict of interest in that the CIRA Advisor Representative may have a financial incentive to 

maintain a relationship with [CIRI] and recommend [CIRI] to clients.” (Emphasis added). 

105. However, this disclosure was inadequate because CIRA IARs did receive such 

Forgivable Loans from CIRI, and because the CIRA IARs did have a financial incentive to 

maintain a relationship with CIRI and recommend CIRI to clients.    

106. CIRA’s failures to disclose, or adequately disclose, the conflicts associated with 

the Forgivable Loans were omissions of material fact, CIRA was required by law to fully 

disclose its conflicts of interest to its advisory clients, and CIRA acted at least negligently in 

failing to disclose such information. 

 

 

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VIII. CIRA Failed to Adopt and Implement Required Written Policies and Procedures 

107. CIRA failed to adopt and implement written policies and procedures reasonably 

designed to prevent violations of the Advisers Act in connection with its investment selection, 

selection of (and conversion of) account type for clients, making recommendations of 

investments that were in the best interests of its advisory clients, and disclosure of conflicts of 

interest. 

108. While CIRA had a general written policy for disclosing and remediating conflicts 

of interest, this policy did not address investment selection practices, and it was not implemented 

so that CIRA made adequate disclosures regarding conflicts created by CIRI’s receipt of revenue 

sharing payments, CIRA’s avoidance of transaction costs, CIRA’s selection of the wrap program 

for clients, and the forgivable loan program. 

109. While CIRA also had a general written policy to seek best execution for its 

clients, including as to mutual funds, CIRA failed to implement that policy in the context of its 

investment selection practices, and in particular selecting mutual funds, sweep funds, and share 

classes that were in the best interests of its clients.  CIRA also failed to evaluate existing client 

holdings during the account review process to determine whether a more favorable mutual fund, 

sweep fund, or share class was available subsequent to the initial purchase. 

110. CIRA also lacked written policies and procedures concerning the evaluation and 

selection of account types for clients, such that clients would be placed and held in accounts that 

were most appropriate for their needs.  

111. Therefore, CIRA failed to adopt and implement written policies and procedures 

reasonably designed to prevent Advisers Act violations. 

 

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COUNT I 
 

Violation of Section 206(2) of the Advisers Act 
(Against Defendant CIRA) 

112. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference. 

113. CIRA is an investment adviser defined by Section 202(a)(11) of the Advisers Act 

[15 U.S.C. § 80b-2(a)(11)]. 

114. CIRA, at least negligently and in violation of the applicable standard of care, 

engaged in transactions, practices, or courses of business that operated as a fraud or deceit upon 

its advisory clients. 

115. By engaging in the conduct described above, CIRA, while acting as an investment 

adviser, directly or indirectly, by use of the mails or means and instrumentalities of interstate 

commerce, engaged in transactions, practices, and courses of businesses which operated as a 

fraud or deceit upon its advisory clients. 

116. By reason of the foregoing, CIRA violated, and unless enjoined there is a 

reasonable likelihood that it will continue to violate, Section 206(2) of the Advisers Act [15 

U.S.C. §§ 80b-6(2)]. 

COUNT II 
 

Violation of Section 206(4) of the Advisers Act & Rule 206(4)-7 Thereunder  
(Against Defendant CIRA) 

117. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference. 

118. Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] provides that it is 

unlawful for an investment adviser to engage in an act, practice, or course of business which is 

fraudulent, deceptive, or manipulative.  It further states that the SEC shall issue rules to define 

and prescribe measures to prevent such misconduct.  Rule 206(4)-7 issued under the Advisers 

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Act [17 C.F.R. § 275.206(4)-7] requires, among other things, that investment advisers adopt and 

implement written policies and procedures reasonably designed to prevent violations of the 

Advisers Act and its rules.  Investment advisers must also review the adequacy of those policies 

and procedures and the effectiveness of their implementation, at least annually.  

119. CIRA failed to adopt and implement written policies and procedures reasonably 

designed to prevent its violations of the Advisers Act. 

120. By reason of the foregoing, CIRA has directly or indirectly violated, and unless 

enjoined will likely again violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and 

Rule 206(4)-7 thereunder [17 C.F.R. § 275.206(4)-7]. 

COUNT III 

(Against Relief Defendant CIRI) 

121. Paragraphs 1 through 114 are re-alleged and incorporated herein by reference. 

122. CIRI received NTF and sweep revenue sharing payments from the Clearing 

Brokers to which it does not have any legitimate claim, as a result of CIRA’s violations of 

Section 206(2) and 206(4) of the Adviser Act and Rule 206(4)-7 thereunder. 

123. CIRI obtained these ill-gotten gains and/or unjust enrichment described above as 

part, and in furtherance, of the securities laws violations alleged in this Complaint, under 

circumstances in which it is not just, equitable, or conscionable for it to retain the funds. 

 

 

 

 

 

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PRAYER FOR RELIEF 

WHEREFORE, the SEC respectfully requests that this Court: 

I. 

(Injunctive Relief Against Future Securities Law Violations) 

Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil 

Procedure, permanently restraining and enjoining CIRA and its officers, agents, servants, 

employees, attorneys, and those persons in active concert or participation with it who receive 

actual notice by personal service or otherwise, from further violating Sections 206(2) and 206(4) 

of the Advisers Act and Rule 206(4)-7 thereunder [15 U.S.C. §§ 80b-6(2), 80b-6(4), and 17 

C.F.R. § 275.206(4)-7]. 

II. 

(Disgorgement) 

Order CIRA and CIRI to disgorge any and all ill-gotten gains and/or unjust enrichment, 

together with pre-judgment interest, received directly or indirectly from the activities set forth in 

this Complaint. 

III. 

(Civil Penalties) 

 Order CIRA to each pay an appropriate civil penalty pursuant to Section 209(e) of the 

Advisers Act [15 U.S.C. § 80b-9(e)]. 

IV. 

(Retention of Equitable Jurisdiction) 

Retain jurisdiction of this action in accordance with the principles of equity and the 

Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and 

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decrees that may be entered or to entertain any suitable application or motion for additional relief 

within the jurisdiction of this Court. 

V. 

(Other Relief) 

Grant such other relief as this Court may deem just or appropriate. 

JURY DEMAND 
 

The SEC demands a trial by jury on all claims so triable. 
 
Dated: March 1, 2022   
           
 Respectfully submitted, 

 
UNITED STATES SECURITIES AND 
EXCHANGE COMMISSION 
 
/s/ Timothy J. Stockwell 
TIMOTHY J. STOCKWELL 
Trial Attorney 
DAVID F. BENSON 
Senior Attorney 
JEFFREY A. SHANK 
Assistant Regional Director 
175 West Jackson Boulevard, Suite 1450 
Chicago, Illinois 60604 
Telephone: (312) 596-6049 
Facsimile: (312) 353-7398 
Email: [email protected] 
 
Attorneys for Plaintiff United States Securities 
and Exchange Commission 
 

 
 
 

 

  
 

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