SEC charges Cambridge Investment Research, Inc.

Posted on March 2, 2022Comments Off on SEC charges Cambridge Investment Research, Inc.

SEC Charges Investment Adviser With Failing to Disclose Conflicts Arising from Mutual Fund and Account Recommendations

Securities and Exchange Commission v. Cambridge Investment Research Advisors, Inc., et al., No. 22-cv-00071-SMR-SBJ (S.D. Iowa filed March 1, 2022)

Washington, DC (STL.News) The Securities and Exchange Commission (SEC) yesterday charged Cambridge Investment Research Advisors, Inc. (“CIRA”), a registered investment adviser based in Fairfield, Iowa, with failing to disclose material conflicts of interest and breaching its duty of care related to its selection of mutual funds and wrap accounts for clients.

According to the SEC’s complaint, since at least 2014, CIRA repeatedly breached its fiduciary duty to advisory clients by failing to disclose material conflicts of interest.  In particular, the complaint alleges that CIRA invested client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to an affiliated broker-dealer, Cambridge Investment Research, Inc., instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing.  These undisclosed investment practices, the complaint alleges, also allowed CIRA to avoid paying millions of dollars in transaction fees.  In addition, according to the complaint, CIRA converted hundreds of accounts to its more expensive wrap account program without adequate disclosure and without analyzing whether doing so was in its clients’ best interests.  The complaint further alleges that CIRA failed to disclose that its investment adviser representatives received compensation in the form of forgivable loans in exchange for meeting certain criteria such as maintaining certain asset levels and tenure with CIRA.

The complaint, filed in federal court in the Southern District of Iowa, charges CIRA with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder and seeks a permanent injunction, disgorgement including prejudgment interest, and civil penalties.  The complaint also names Cambridge Investment Research, Inc. as a relief defendant.

The SEC’s investigation was conducted by David Benson of the Denver Regional Office under the supervision of Jeffrey Shank of the Asset Management in the Chicago Regional Office, with the assistance of John Farinacci, Christopher Van Pelt, Anne Salvador, and Susan Weis.  The litigation will be led by Timothy Stockwell of the Chicago Regional Office.

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