April 6, 2023
Who may be interested: Registered Investment Advisers.
Quick Take: The SEC settled charges against a registered investment adviser alleging that the adviser failed to fully disclose to its clients foreign currency exchange fees charged in connection with transfers to or from client accounts.
The SEC order stated that between May 2016 and July 2020 (relevant period), the adviser failed to disclose additional fees charged to its wrap fee program clients for transfers of funds requiring the exchange of foreign currencies to and from U.S. Dollars (production credits). The adviser disclosed that markups or markdowns would be charged on foreign currency exchanges in its advisory agreements but failed to disclose an additional production credit charge (referred to as a commission in internal documents) that was, in the majority of instances, equal to or greater than the disclosed markups or markdowns. During the relevant period, the adviser charged its clients over $4 million in undisclosed production credits.
The SEC order stated that, in failing to disclose the production credit charged on foreign currency exchanges, the adviser violated Section 206(2) of the Advisers Act, which prohibits an investment adviser from engaging in any transaction, practice or course of business that operates as a fraud or deceit upon a client. The SEC order further stated that the adviser violated Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder by failing to adopt and implement policies and procedures reasonably designed to prevent its disclosures from being misleading with respect to the foreign currency exchange fees.
Without admitting or denying the findings in the SEC order, the adviser agreed to a censure, a cease-and-desist order and to pay disgorgement, prejudgment interest and a civil penalty totaling approximately $9.5 million.
The SEC’s order is available here.
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The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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