Form CRS crackdown: SEC fines 21 advisors, 6 broker-dealers over compliance flaws

The Securities and Exchange Commission said Monday that 21 investment advisors and 6 broker-dealers have agreed to settle charges that they failed to timely file and deliver their client or customer relationship summaries, known as Form CRS, to their retail investors.

Pete Driscoll, head of the SEC’s exam division, said in March that the exam team “had identified hundreds of firms that we believed should have filed a Form CRS but didn’t.”

The exam team “did an outreach,” some cases twice in an informal way, on firms who had retail clients that failed to file a Form CRS. “We had a large number that didn’t respond to us — at all,” Driscoll relayed. “We’re opening up exams on them to look at the requirements and whether or not that firm should have filed, particularly as they were nonresponsive to us.”

Driscoll announced July 14 that he’d depart the agency effective Aug. 14.

As the SEC explains, on June 5, 2019, the SEC adopted Form CRS and required SEC-registered investment advisors and SEC-registered broker-dealers to file their respective Forms CRS with the SEC, begin delivering them to prospective and new retail investors by June 30, 2020, and deliver them to existing retail investor clients or customers by July 30, 2020.

The SEC also required firms to prominently post their current Form CRS on their website, if they had one.

James Lundy, partner at Faegre Drinker in Chicago, told BenefitsPRO’s sister site ThinkAdvisor that Monday’s action by the SEC “is not a Reg BI crackdown.” Monday’s action “is a Form CRS crackdown and specific to firms that missed the deadline for Form CRS compliance and needed to be reminded twice by regulators to comply.”

Reg BI, Lundy added, “is a different rule” within the four-pronged advice-standards package adopted by the SEC.

According to the SEC’s orders, “each of the firms charged today missed those regulatory deadlines. The orders find that none of the firms filed or delivered its Form CRS, or posted it to its website, until being twice reminded of the missed deadlines by their regulators—in the case of investment advisers, by the SEC’s Division of Examinations, and in the case of broker-dealers, by the Financial Industry Regulatory Authority.”

Gurbir S. Grewal, director of the SEC’s Enforcement Division, said in a statement that “Registration with the SEC as an investment adviser or broker-dealer comes with mandated filing and disclosure obligations. Today’s cases reinforce the importance of meeting those obligations and providing retail investors with information that is intended to help them understand their relationships with their securities industry professionals.”

Form CRS, added Adam Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, “is intended to provide retail investors with a brief summary about the services a firm offers, its fees, conflicts of interest, and other information that can help investors make more informed choices. By failing to file, deliver, and post this form, these firms deprived their clients and customers of the benefits of that information.”

The SEC’s orders find that the investment advisers violated Section 204 of the Investment Advisers Act of 1940 and Advisers Act Rules 204-1 and 204-5, and that the broker-dealers violated Section 17(a)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-14.  Without admitting or denying the findings, the firms agreed to be censured, to cease and desist from violating the charged provisions, and to pay the following civil penalties:

• Altschuler, James Stephen, a Lexington, Massachusetts-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Canton Hathaway LLC, a Providence, Rhode Island-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Carmel Capital Management LLC, a Carmel, California-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Castle Wealth Planning LLC, a Santa Barbara, California-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Cohen Klingenstein LLC, a New York, New York-based investment adviser, has agreed to pay a $97,523 civil penalty.
• Dynamic Trading Management LLC, a White Plains, New York-based investment adviser, has agreed to pay a $10,000 civil penalty.
• Eastside Financial Advisors LLC, a Fayetteville, New York-based investment adviser, has agreed to pay a $10,000 civil penalty.
• Embree Financial Group Inc., a Chicago, Illinois-based investment adviser, has agreed to pay a $97,523 civil penalty.
• Harold Davidson & Associates Inc. a Los Angeles, California-based investment adviser, has agreed to pay a $25,000 civil penalty.
• John A. Bysko Associates, an Old Lyme, Connecticut-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Madden Funds Management Ltd., an Oak Park, Illinois-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Medallion Wealth Advisors LLC, a Farmington, Connecticut-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Mighty Oak Strong America Investment Company, a Mechanicsburg, Pennsylvania-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Minot DeBlois Advisors LLC, a Boston, Massachusetts-based investment adviser, has agreed to pay a $97,523 civil penalty.
• O’Brien Greene & Co. Inc., a Media, Pennsylvania-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Paratus Financial Inc., a Dallas, Texas-based investment adviser, has agreed to pay a $97,523 civil penalty.
• Quantitative Asset Management LLC, a Wayzata, Minnesota-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Sauberan & Company LLC, a Lockport, New York-based investment adviser, has agreed to pay a $10,000 civil penalty.
• Summit Financial Advisors Inc., a Lebanon, Ohio-based investment adviser, has agreed to pay a $25,000 civil penalty.
• The Cavanaugh Group Inc., a Towson, Maryland-based investment adviser, has agreed to pay a $50,000 civil penalty.
• Westbourne Investments Inc., an Alexandria, Virginia-based investment adviser, has agreed to pay a $25,000 civil penalty.
• Bill Parker Agency, a Sacramento, California-based broker-dealer, has agreed to pay a $10,000 civil penalty.
• Birkelbach & Co., a Ponte Vedra Beach, Florida-based broker-dealer, has agreed to pay a $10,000 civil penalty.
• Capital Portfolio Management Inc., a Timonium, Maryland-based broker-dealer, has agreed to pay a $25,000 civil penalty.
• Greentree Investment Services Inc., a Bridgeville, Pennsylvania-based broker-dealer, has agreed to pay a $10,000 civil penalty.
• ST Invest LLC d/b/a Trade App, a San Antonio, Texas-based broker-dealer, has agreed to pay a $10,000 civil penalty.
• Tradier Brokerage Inc., a Charlotte, North Carolina-based broker-dealer, has agreed to pay a $50,000 civil penalty.