The SEC brought charges against Vertical Capital Partners, Inc., formerly known as Security Capital Trading, Inc., and now known as Arjent Ltd. (Vertical), and Francesca Wolfsohn in connection with a mutual fund wrap fee program Vertical sponsored.
According to the SEC, Vertical, a registered broker-dealer, sponsored a wrap fee program from 1999 and at least through the end of 2005 that consisted of managed accounts traded by Wolfsohn, a registered representative at Vertical. Account agreements for the managed accounts provided that Vertical would not charge loads or sales commissions on mutual fund purchases. Contrary to these provisions, and without disclosure to clients, between August 2002 and August 2004, Vertical charged managed account clients approximately $530,000 in loads on mutual fund purchases. The overcharge was apparently the result of an error in Vertical's computerized trade entry process.
The SEC stated that Vertical received, but failed to adequately review or investigate, monthly reports on Wolfsohn's compensation that should have alerted them to the improper charges. As a result, Vertical violated Section 206(2) of the Investment Advisers Act of 1940 and Rule 10b-10 under the Securities Exchange Act of 1934, and Wolfsohn caused Vertical's violations of these provisions.