A major wealth manager accused of conflict of interest and duty of care failings is now facing charges in federal court.
On Tuesday,
According to
The regulator alleges that Cambridge repeatedly breached its fiduciary duty by investing client assets in certain mutual funds and money market sweep funds. Those investments generated millions of dollars in revenue-sharing payments to an affiliated broker-dealer instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing, according to the SEC.
The complaint says the undisclosed investment practices allowed Cambridge to avoid paying millions of dollars in transaction fees.
The firm is also accused of converting hundreds of accounts to its more expensive wrap account program without adequate disclosure and without analyzing whether doing so was in the best interest of clients.
“These disclosure failures were materially false, misleading, and/or were omissions of material fact,” the complaint says. “CIRA also was at least negligent in violating its duty of care to clients by failing to adequately determine whether the conversion was in each client’s best interest.”
In addition, the complaint alleges that Cambridge failed to disclose that advisors received compensation in the form of forgivable loans in exchange for meeting criteria such as maintaining certain asset levels and tenure with the firm. Advisors typically used the forgivable loans to assist with costs associated with transitioning from their prior firm to Cambridge.
As a result of those alleged actions, the SEC is seeking a permanent injunction and disgorgement, including prejudgment interest and civil penalties. The complaint also named the affiliated broker-dealer, Cambridge Investment Research, as a relief defendant.
But the firm isn’t backing down. In a statement provided to Financial Planning via email, Cambridge officials deny the SEC allegations and have “engaged outside counsel to vigorously defend itself.”
For veteran securities attorney Bill Singer, who is not involved in the case, “there's more than enough hypocrisy to go around.”
“Assuming that the SEC allegations are correct and, to be clear, I suspect that they are, CIRA's misconduct is abhorrent to any notion of disclosure or acting in a customer's best interest,” Singer said. “Ultimately, as the SEC case against CIRA makes clear, the core challenge for many Wall Street participants is fully, fairly and accurately disclosing financial transactions that often put them into conflict with their customers.
Singer said what truly bothers him is that the SEC “fails to acknowledge its own duplicity,” noting that the agency was absent as this activity took part for the better part of a decade, and that it is a mark against both the industry and its regulators.
“If, as the SEC complaint asserts, CIRA's misconduct started in 2014, what does that say about the SEC early-warning systems and its own investigation practices?” Singer said. “Even more troubling is the ambitious, I would say overly ambitious, agenda that is announced almost daily by the SEC whereby it seeks to overhaul many extant rules and promulgate even more.
“Frankly, I find far too much of what comes out of the SEC in recent months to be generic and far too ambitious.”
The charges against Cambridge come as
During the
