SEC charges Ambassador Advisors compliance chief for breaching fiduciary duties

The SEC complaint, filed Wednesday in the U.S. District Court for the Eastern District of Pennsylvania, alleges that, from August 2014 to December 2018, Ambassador Advisors, along with Bernard Bostwick, Robert Kauffman, and Adrian Young—part owners, executives, and investment adviser representatives of the firm—“unlawfully invested their advisory clients in mutual fund share classes with 12b-1 fees when lower-cost mutual fund share classes were available to the clients.”

In doing so, the SEC alleges Ambassador Advisors, Bostwick, Kauffman, and Young breached their duty to seek best execution for their clients. “As a result, clients received a lower return on their investment, and Bostwick, Kauffman, and Young received additional compensation in the form of 12b-1 fee revenue,” the SEC complaint states.

Young has been chief compliance officer and an investment adviser representative of Ambassador Advisors since at least 2011 and owned one-third of Ambassador Advisors during the relevant period (he now owns 50 percent). According to the SEC, Young received between 24 percent and 29 percent of the 12b-1 fee revenue derived from the mutual fund investments in Ambassador Advisors client accounts during the relevant period.

The complaint further alleges Ambassador Advisors “failed to adopt and implement written policies and procedures reasonably designed to make mutual fund share-class recommendations in clients’ best interests and to disclose defendants’ conflicts of interest in connection with mutual fund share-class selection.”

It further alleges Ambassador Advisors, Bostwick, Kauffman, and Young violated the anti-fraud provisions of Section 206(2) of the Investment Advisers Act of 1940, and that the firm violated the anti-fraud provisions of Section 206(4) of the Advisers Act and Rule 206(4)-7. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.