Registered investment adviser City National Rochdale (CNR) has agreed to pay $30.4 million in a settlement with the Securities and Exchange Commission (SEC) for conflict-of-interest violations.
Under the settlement, announced Thursday, CNR will pay disgorgement of approximately $22 million, prejudgment interest of $2.85 million, and a civil penalty of $5.5 million. The money will be placed in a fund for distribution to harmed investors, the SEC said.
Further, CNR agreed to be censured, cease and desist from committing or causing future violations, retain an independent compliance consultant, and provide notice of the settlement to affected advisory clients. CNR did not admit nor deny the SEC’s findings.
The details: CNR, a wholly owned subsidiary of City National Bank, provides advisory services to individuals who give the firm discretionary authority over their accounts. “When investing client assets in mutual funds, CNR’s practice is to invest those assets in proprietary mutual funds that generate fees for the firm and its affiliates, rather than competitor funds within the same asset classes that may not generate such fees,” the SEC’s order stated.
From at least 2016 through 2019, CNR “did not fully and fairly” inform its clients of its practice of investing assets in proprietary mutual funds rather than in competitor funds, the SEC stated. “In addition, CNR failed to disclose to prospective clients that they could invest in CNR’s proprietary mutual funds at lower cost,” the agency’s order continued. The SEC found clients introduced to CNR by third-party financial advisers were charged additional fees compared to clients who opened accounts through CNR affiliates.
Regarding compliance deficiencies, CNR “failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its use of proprietary funds and its disclosures of related conflicts of interest,” the SEC’s order stated.
The agency found CNR violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.
“We are pleased to put this self-disclosed issue behind us,” said City National Bank in an emailed statement.