Cambridge Investment Research Advisors to Pay $15 Million Fine Over Undisclosed Conflicts in Investment Recommendations
From the desk of Jim Eccleston at Eccleston Law
Cambridge Investment Research Advisors (CIRA) has agreed to pay $15 million to settle allegations brought by the Securities and Exchange Commission (SEC), which accused the firm of failing to disclose multiple conflicts of interest in its investment recommendations.
According to the SEC, CIRA breached its fiduciary duty over a period spanning more than ten years by steering client assets into higher-cost mutual funds and sweep accounts that generated revenue for its affiliated broker-dealer, Cambridge Investment Research, Inc. (CIRI), instead of recommending lower-cost options that would have better served its clients’ interests.
The allegations stemmed from a March 2022 complaint that also accused the firm of converting client accounts into wrap fee programs without properly analyzing whether such accounts were appropriate or disclosing the associated conflicts. The SEC found that CIRA’s disclosures did not adequately inform clients that certain fund selections enriched its affiliated broker-dealer through additional compensation.
In the final judgment, Cambridge agreed to pay over $10.1 million in disgorgement, $3 million in prejudgment interest, and a $1.8 million civil penalty—without admitting or denying the SEC’s findings.
The SEC’s complaint also revealed that CIRA failed to disclose that some of its advisers received payouts, in the form of loans from CIRI forgiven by years of employment, in exchange for maintaining specific asset levels and staying with the firm—further incentives that were not communicated to clients.
Additionally, the SEC found that CIRA avoided millions of dollars in transaction costs by converting accounts to wrap fee programs beginning in 2014. Under these arrangements, costs typically borne by the firm were instead passed on to clients.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
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