The SEC has made it abundantly clear to registered investment advisers that failure to disclose conflicts of interest to clients will continue to be a basis for SEC enforcement action. A recent example is In the Matter of the Robare Group, Ltd., Mark L. Robare, and Jack L. Jones Jr. (Investment Advisers Act Release No 3907, Sept. 2, 2014). In this enforcement matter, the SEC alleges that the investment adviser failed to inform clients during the period of 2005 through 2011, that it was receiving compensation from a broker-dealer for client assets that were invested in certain mutual funds sponsored by the broker-dealer.
The Robare Group, Ltd., located in Houston, Texas reportedly has about 350 separately managed client accounts with about $150 million of assets under management. The advisory firm primarily services retail clients and utilizes the broker-dealer for, among other things, executive and custody services for its clients. A significant amount of client assets that are invested in mutual funds are invested, via discretionary authority by the adviser, in funds offered on the broker-dealer’s platform.
The SEC, in the complaint, alleges that the adviser and two of its limited partners, Messrs. Robare and Jones, violated the “anti-fraud” provisions under Sections 206(1) and (2) and 207 of the Advisers Act in failing to disclose the conflict of interests to the adviser’s clients. The SEC is asking the court to order the respondents to cease and desist from further violations of the anti-fraud provisions under the Advisers Act.