SEC Brings Enforcement Action for a Variety of Compliance Issues

November 24, 2014

Alan Gavornik, Nicholas Mariniello and Lee Argush, all principals of Concord Equity Group Advisors, LLC (formerly an SEC-registered investment adviser) settled charges with the SEC, which had alleged that they breached their fiduciary duty to advisory clients by failing to disclose a conflict of interest and by failing to seek to obtain best execution for their clients. Alan Gavornik was the Chief Compliance Officer of Concord.

The SEC stated that in November 2008, the principals entered into an undisclosed arrangement with an unaffiliated broker-dealer (Executing Broker) to provide trade execution for Concord’s clients at a commission rate of $0.01 per share executed. However, under the arrangement, the SEC found that the Executing Broker actually charged Concord’s clients between $0.04 and $0.06 per share executed, and then paid the amount exceeding $0.01 per share commission to Concord’s affiliated broker-dealer, Tore Services, LLC, in the form of a referral fee. Thus, the SEC stated that Tore (and through it, the principals) were paid between $0.03 and $0.05 per share on Concord client transactions executed through the Executing Broker. In total, between November 2008 and June 2011, Tore collected $1,005,000 in transaction-based fees generated by Concord’s clients’ trading.

This commission-sharing arrangement represented a conflict of interest because Concord and the principals (who were fiduciaries) were incentivized to encourage Concord’s clients to execute trades through the Executing Broker so that they could share in a portion of the execution commission. Yet, the principals according to the SEC failed to adequately disclose the commission-sharing arrangement in Concord’s Forms ADV Part 2A, or otherwise inform Concord’s clients of the conflict. The SEC stated that Gavornik, as the officer responsible for Concord’s periodic filings with the SEC, including Concord’s Forms ADV, failed to maintain a copy of Concord’s Forms ADV Part 2A and each amendment thereto, or keep records of the dates that each Form ADV Part 2A was given to clients or prospective clients. In addition, by failing to advise clients of the $0.01 execution rate negotiated with the Executing Broker, and instead arranging for clients to execute at higher commission rates – keeping the difference for themselves – the principals also failed to seek to obtain best execution for their advisory clients.

Among other sanctions, the principals are subject to a disgorgement of $1,005,000 and prejudgment interest of $147,827, for a total of $1,152,827, on a joint and several basis.

Click http://www.sec.gov/litigation/admin/2014/34-73678.pdf to access the enforcement action.


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Investment Advisers, Investment Companies