Massachusetts-based investment adviser Moors & Cabot reached an approximately $1.9 million settlement with the Securities and Exchange Commission (SEC) over allegations the firm didn’t fairly disclose conflicts of interest associated with incentive payments it received from two unaffiliated clearing brokers.
The firm was also censured after it failed to implement written compliance policies and procedures aimed at preventing violations of the Advisers Act, according to the SEC’s order filed Thursday.
The two clearing brokers executed securities transactions and handled related recordkeeping on behalf of Moors & Cabot between at least February 2017 and September 2021, the SEC stated. Services they provided included transferring customers’ uninvested cash into interest-bearing bank accounts, called cash sweep programs, and providing loans so customers could buy securities.
The clearing brokers, whom the SEC did not name, paid financial incentives to and shared some of the revenue they earned with Moors & Cabot, if certain thresholds were exceeded.
The revenue sharing payments and financial incentives presented conflicts of interest for Moors & Cabot for multiple reasons, the SEC said, including the firm being incentivized to allocate more of their clients’ assets to cash so it could be swept into bank accounts.
“Moors & Cabot did not adequately disclose the revenue sharing payments and financial incentive arrangements, nor the associated conflicts of interest, to advisory clients,” the SEC said.
The firm also failed to fully disclose its disciplinary history and that of two of its investment adviser representatives to prospective clients before September 2021, including a 2020 settlement it reached with the Financial Industry Regulatory Authority, the SEC alleged.
Without admitting or denying the SEC’s findings, Moors & Cabot agreed to pay disgorgement of $1,436,182, prejudgment interest of $88,274, and a penalty of $375,000. Within 30 days it must evaluate whether its written policies and procedures are effective in preventing violations of the Advisers Act relating to disclosure of conflicts of interest and financial incentives.
The firm agreed to add full disclosure information to client brochures in addition to other remedial measures, the SEC noted.
Moors & Cabot did not respond to a request for comment.
No comments yet