Cambridge agrees to settle SEC charges for $15M

Cambridge Investment Research Advisors has reached a nearly $15 million settlement with the SEC over allegations that it breached its fiduciary duties by investing client assets in certain mutual funds and other funds.

According to court documents filed Friday, Cambridge Investment will pay nearly $10.2 million in disgorgement, $3 million in interest and $1.8 million as a civil money penalty to resolve charges filed by the Securities and Exchange Commission in March 2022. Regulators then accused the Fairfield, Iowa-based firm with roughly $187 billion in assets under advisement and 3,800 advisors of generating millions in revenue for its broker-dealer affiliate, also named Cambridge Investment Research, by investing clients in mutual funds and money market sweeps funds that generated revenue-sharing payments.

READ MORE:
Cambridge accused of improper conflict of interest disclosures by the SEC
Cambridge ordered to pay bank over 'aggressive' client solicitation
Edward Jones, Osaic, Cambridge to pay $8.2M over mutual fund fumbles

The SEC alleged there were less-expensive options that would have yielded no revenue sharing for the brokerage affiliate. By not directing clients to those alternatives, regulators said, Cambridge failed to fulfill its fiduciary duty to look out for their best interests.

Cambridge Investment and its lawyers did not return requests for comment. When the SEC first filed its charges, the firm said it had "engaged outside counsel to vigorously defend itself."

The allegations cited in the SEC's case against Cambridge date at least to 2014, regulators said. Besides breaches of the fiduciary duty, the SEC accused Cambridge of failing to disclose conflicts of interest to clients.

Regulators said the firm's investment practices not only generated lucrative revenue-sharing payments but also allowed it to avoid paying millions of dollars in transaction fees. Cambridge was 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.

The SEC's complaint also alleged that Cambridge failed to disclose that advisors had received compensation in the form of forgivable loans in exchange for meeting criteria such as maintaining certain asset levels and tenure with the firm. The advisors who benefited often used the forgivable loans to defray costs associated with moving from their previous firms to Cambridge.

The SEC and Cambridge told the federal court in Iowa in January that they had agreed to settle the allegations. The agreement submitted on Friday still awaits the court's approval.

Cambridge separately agreed in December to pay $699,217 in restitution for not doing enough to make sure clients were taking advantage of mutual funds' so-called reinstatement policies, which allow investors who have sold shares of a mutual fund to reinvest in the same fund without having to pay a new front-end sales charge or to claim a rebate on sales charges. Edward Jones then agreed to pay $4.44 million and Osaic and $3 million over similar alleged violations.