The Securities and Exchange Commission (SEC) today announced settled charges against New York-based registered investment adviser Cadaret, Grant & Co., Inc., for breaches of its fiduciary duty related to its receipt of third-party revenue without fully and fairly disclosing its conflicts of interest.
According to the SEC’s order, Cadaret Grant breached its fiduciary duty to its clients when it received: (1) revenue sharing payments from its clearing broker as a result of advisory clients’ investments in no-transaction fee mutual fund share classes; (2) revenue sharing payments from its clearing broker as a result of sweeping cash into certain money market mutual funds; and (3) markups on its clearing broker’s transaction fees, which its clearing broker paid to Cadaret Grant. Cadaret Grant failed to provide full and fair disclosure regarding conflicts of interest associated with its receipt of this revenue.
As set forth in the order, Cadaret Grant also breached its duty of care in connection with its recommendation and selection of cash sweep account options and no-transaction fee mutual fund share classes for clients.
According to the order, Cadaret Grant also failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.
The SEC’s order finds that Cadaret Grant violated the antifraud and compliance provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, Cadaret Grant consented to a cease-and-desist order and a censure.
Cadaret Grant agreed to pay disgorgement of $4,213,351 with prejudgment interest of $828,075 and a civil penalty of $1,000,000, and agreed to distribute the ordered funds to harmed investors. Cadaret Grant also agreed to comply with certain undertakings.
