A pair of investment advisers owned by Cetera Financial Group must pay a total of more than $8.6 million as part of a final judgment obtained by the Securities and Exchange Commission (SEC) alleging the defrauding of Cetera advisory clients.
Cetera Advisors and Cetera Advisor Networks were each assessed penalties of $1 million in addition to combining to pay disgorgement and prejudgment interest of approximately $6.6 million to resolve SEC claims of violating the Investment Advisers Act raised in an October 2019 complaint. The case had originally been filed against Cetera Advisors in August 2019 before Cetera Advisor Networks was added as a defendant two months later.
Final judgment for the case filed in U.S. District Court for the District of Colorado was obtained Oct. 13, though the SEC announced the result in a litigation release Monday.
The details: The Cetera affiliates breached their financial duty to their clients by failing to disclose conflicts of interest affecting their investments, the SEC alleged in its second amended complaint in April 2020. Each firm was faulted for the same four failures over differing periods of time.
Cetera Advisors held client investments when lower-cost alternatives were available without disclosing doing so from at least September 2012 through December 2016, while Cetera Advisor Networks did the same from at least April 2014 through December 2016, according to the SEC. The agency also alleged Cetera Advisors and Cetera Advisor Networks, starting at least September 2012 and April 2014, respectively, received compensation from a third-party broker-dealer for investing clients in certain mutual funds without informing them of the conflict.
The unnamed broker-dealer shared at least $4.3 million of compensation from mutual funds with the Cetera firms, which they also did not disclose, the SEC continued. Further, the agency alleged the two firms through March 2018 directed the broker-dealer to mark up certain client fees by up to 300 percent, sharing the millions of dollars in ill-gotten gains.
In all, the SEC claimed the Cetera advisers collectively received more than $21 million from “breaching their fiduciary duty and defrauding their clients.” The agency noted the two firms shared compliance, legal, and IT personnel from their parent company.
“This is an industry-wide issue that has been discussed for many years,” said a Cetera spokesperson in response to the final judgment. “Cetera revised its disclosures several years ago and fully cooperated with the SEC throughout the course of this matter. We are pleased to have resolved this matter with the SEC and will continue to focus on providing exceptional service for Cetera financial professionals and their clients.”
The SEC said the judgment resolved all its claims.
Cetera Advisors, Cetera Advisor Networks, and three other Cetera affiliates were collectively ordered to pay $300,000 by the SEC in August 2021 for breaches of employee email accounts that exposed customer information.