A Delaware-based investment adviser agreed to pay more than $1.3 million to settle charges by the Securities and Exchange Commission (SEC) it failed to disclose conflicts of interest and breached its fiduciary duty to clients.
Wilmington Trust Investment Management was fined $250,000 and agreed to pay disgorgement of nearly $1 million and prejudgment interest of more than $77,000, the SEC announced in an administrative proceeding Tuesday. The firm agreed to cease and desist from further violations and be censured in reaching settlement.
The details: During a seven-month period in 2020, Wilmington Trust offered a wrap program for certain mutual funds but failed to disclose conflicts of interest associated with no-transaction fees offered through its clearing firm, the SEC alleged in its order.
Wilmington Trust also avoided paying transaction fees by investing client assets in certain mutual funds in the same sector that had higher expense ratios, the SEC found. The agency said this conduct violated the firm’s duty-of-care obligations, including its duty to seek best execution.
The firm failed to undertake an analysis to determine if these investments were in the best interest of clients, the SEC alleged.
Compliance considerations: Wilmington Trust did not implement written compliance policies and procedures reasonably designed to prevent violations of the Advisers Act, the SEC alleged. The firm was also faulted for failing to implement a system reasonably designed to prevent exceptions to allow for the avoidance of incurring transaction fees.
After agency staff informed the firm of these apparent violations, Wilmington Trust reimbursed harmed clients, including interest, per the order.
Firm response: In an emailed statement, a Wilmington Trust spokesperson said the wrap program was discontinued in 2021.
“We do not anticipate that the settlement will impact the services we provide to our clients or on the business’s financial health,” the statement read. “We are pleased that this matter has been resolved.”
The firm agreed to the settlement without admitting or denying the SEC’s findings.