On September 6, 2012, the SEC settled charges against Focus Point Solutions, Inc. (FP), a registered investment adviser and provider of custodial support and “turn-key” asset management services, together with its related adviser, The H Group, Inc. and their principal, Christopher Keil Hicks with violating federal securities laws for failure to disclose material conflicts of interest in three areas of their advisory business. The SEC alleged that FP willfully violated Sections 206(2) and 207 of the Advisers Act by failing to disclose to the approximately 60 investment advisers that engaged FP to provide, among other things, proprietary asset allocation models and investment recommendations, that a registered broker-dealer agreed to pay FP a certain percentage of every dollar that FP’s clients invested in certain “no transaction fee” mutual funds (NTF funds) offered by the broker and that FP had an incentive to recommend NTF funds over other investments that would not generate revenue for FP. The SEC also alleged that FP willfully violated Section 15 of the 1940 Act by misleading the trustees of Northern Lights Fund Trust, with respect to the Generations Multi-Strategy Fund, for which FP was seeking approval to become the sub-adviser, by representing that it did not expect to receive payments or benefits from the fund other than the fee paid pursuant to the sub-advisory agreement. However, according to the SEC, the fund’s primary adviser, a firm under common control with FP and The H Group, agreed to pay FP approximately 15 basis points, separate and apart from the sub-advisory fee. The SEC’s order further alleges that Mr. Hicks willfully aided and abetted each of FP’s violations. The SEC’s order states that the vast majority of the fund’s shareholders were clients of The H Group, which had recommended the fund to many of its clients. Finally, the SEC alleged that The H Group willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-6 thereunder by voting client proxies in favor of the proposal to approve FP as the fund’s sub-adviser, despite its related adviser having a financial interest in the outcome of the vote and a requirement under The H Group’s proxy voting policy that, in circumstances involving a conflict of interest, the proxies be referred to the investors themselves to vote on the proposal.
As a result of the SEC’s findings, FP agreed to disgorge $900,000 in ill-gotten gains, pay a $100,000 penalty and hire an independent consultant to conduct comprehensive compliance reviews of the firm. The H Group and Mr. Hicks each agreed to pay a $50,000 penalty. The two firms and Mr. Hicks also agreed to a censure and to cease and desist from committing or causing any violations and any future violations of the foregoing provisions.