On June 17, 2015, the SEC announced settled administrative proceedings against Commonwealth Capital Management, LLC (the “Adviser”), the investment adviser to several series (“funds”) of two open-end management investment companies, one organized as a Delaware statutory trust (“World Funds Trust” or the “Trust”) and the other as a Maryland corporation (“World Funds, Inc.” or the “Corporation”), and members of the board of trustees of the Trust (the “Trust Board” and the members individually, “Trustees”), involving the alleged failure to satisfy specific duties imposed upon them by Section 15(c) of the 1940 Act in connection with the advisory contract approval process. In the same action, the SEC alleged that Commonwealth Shareholder Services, Inc. (the “Administrator” and together with the Adviser, the “Affiliated Service Providers”), the funds’ administrator and an affiliate of the Adviser, failed to include required disclosure concerning the 15(c) process in a shareholder report for a series of the Corporation, causing the Corporation to violate Section 30(e) of the 1940 Act and Rule 30e-1 thereunder. The principal of the Affiliated Service Providers (the “Principal”), who also served as an interested member of the Trust Board and of the board of directors of the Corporation (the “Corporation Board”), is alleged to have caused the Adviser’s violations.

The Principal formed the Affiliated Service Providers and other related entities in order to offer small and mid-sized mutual funds “turnkey” fund services, including investment advisory, fund accounting, fund administration, transfer agent and distribution services. The Adviser did not make the day-to-day investment decisions for the funds; instead, it contracted out those services to an unaffiliated sub- adviser (a “Third-Party Sub-Adviser”).

The SEC alleges that, with respect to the Trust, the Adviser and the Principal did not furnish, and the Trustees did not have, and consequently did not evaluate, all the information they requested as reasonably necessary to evaluate the approval of the contracts with the Adviser. As to the Corporation, the SEC alleges that certain 15(c) information provided by the Adviser and the Principal in response to the Board’s request was inaccurate. In relevant part, the SEC’s order summarizes the alleged 15(c) process failures as follows:

World Funds Trust

As part of the 15(c) process, the Trust Board, with the assistance of independent counsel and the Administrator, requested that the Adviser and the Principal submit comparative fee information along with a completed 15(c) questionnaire concerning, among other things, the Gartenberg factors. In response, the Administrator compiled various documents, questionnaire responses and other relevant materials; the Principal reviewed and certified the questionnaire responses on behalf of the Adviser. However, the SEC found no documentary evidence that the Adviser furnished information regarding the fees paid by comparable funds. Nevertheless, the Trustees approved the advisory contracts because, as the SEC alleges, the Trustees considered the proposed advisory fees to be within an appropriate range.

In addition, the Trustees requested various information to evaluate the nature and quality of services provided by the Adviser. The SEC found that the Adviser “provided only limited disclosures that left unclear which services it intended to provide versus those that would be provided by others.” The SEC noted that the advisory and sub-advisory contracts described the Adviser’s and Third-Party Sub-Adviser’s proposed duties using nearly identical language, except that the Third-Party Sub- Adviser’s duties were subject to the Adviser’s supervision. The SEC alleges that after reviewing the Adviser’s written responses to the 15(c) questionnaire, the Trustees did not ask for, and the Adviser did not provide, any materials to clarify what services the Adviser would perform in exchange for its proposed fee. The questionnaire did indicate, however, that the Adviser would conduct oversight of the Third-Party Sub-Adviser through quarterly and annual due diligence reviews and would track the funds’ portfolios to ensure compliance with stated investment limitations, but the Adviser did not  articulate which portfolio management compliance services it would perform itself, and the Trustees did not request additional materials to clarify the matter. Although during the relevant time period the funds did not pay any advisory fees as a result of a fee waiver provided for in an expense limitation agreement, and the Adviser reimbursed the majority of operating expenses incurred by such funds, the Trustees “were obligated to evaluate [the Adviser’s] services as compared to the fees provided for in the advisory contracts.” In view of the foregoing, the SEC found that the Trustees approved the Trust’s advisory contracts without having all the information they requested as reasonably necessary to evaluate such contracts.

World Funds, Inc.

As part of the 15(c) process with respect to a series of the Corporation (the “Fund”), the Adviser used a standard industry database to provide fee information for share classes that were comparable in size and with a similar investment strategy as the relevant share class of the Fund. The Adviser did not edit the tables to remove share classes that were not directly comparable to the Fund (an actively managed fund), causing the chart to contain various inapt comparisons, such as share classes with different distribution fee structures, assets at the share-class level rather than the total-fund level, different types of funds (e.g., index-based ETFs) and funds with different fee structures altogether. The Adviser provided two additional charts to the Corporation Board to use to compare the Fund’s expense ratio and advisory fee, but these charts “provided only limited information.” For instance, two of the four funds in the expense ratio chart had vastly different 12b-1 fees than the Fund (1.00% v. 0.25%), and two of the four funds in the advisory fee chart combined administration and advisory fees (yet the Fund, with separate administration and advisory fees, still had the highest advisory fee). The SEC alleges that the following year’s 15(c) review utilized charts with the same comparisons and, consequently, the same deficiencies.

The SEC’s order identified other deficiencies in its findings pertaining to the Corporation Board’s 15(c) process: To assess the Adviser’s profitability, the independent directors of the Corporation Board requested “all reasonably available financial information,” including two years of financial statements and the basis and methodology for allocating indirect costs, overhead and other costs to the Fund.

In response, the Adviser provided an income statement for only one year and a profitability chart that estimated overhead and other expenses for the same year and neither provided a written description of its allocation methodology nor included a balance sheet. In responses to questions in the 15(c) questionnaire regarding the expense limitation agreement and economies of scale, including the appropriateness of any Fund breakpoints, the Adviser erroneously claimed that no fees had been waived and that the advisory contract included appropriate breakpoints (breakpoints that all parties believed to have been in place were omitted from the contract).

The Administrator

The SEC’s order also claims that the Administrator, which was contractually responsible for preparing shareholder reports for the Fund, failed to include the discussion of the material factors and conclusions that formed the basis for the Directors’ approval of the advisory contracts in the Fund’s 2010 shareholder report, thus causing the Corporation to violate Section 30(e) of the 1940 Act and Rule 30e-1 thereunder.

Settlement: Trustees, Adviser, Administrator and Principal

Without admitting or denying the findings, each Trustee, the Adviser and the Principal consented to the order and agreed to cease and desist from committing any further violations of Section 15(c) and the Administrator agreed to cease and desist from committing any further violations of Section 30(e) or Rule 30e-1. Each of the Trustees agreed to pay a penalty of $3,250, while the Principal and the Affiliated Service Providers agreed to jointly and severally pay a $50,000 penalty.

The SEC’s order instituting administrative and cease-and-desist proceedings is available at: http:// www.sec.gov/litigation/admin/2015/ic-31678.pdf