Friday, September 5, 2014

Houston-Based Investment Advisory Firm and Co-Owners Charged With Failing to Disclose Conflict of Interest to Clients

The Securities and Exchange Commission today announced fraud charges against a Houston-based investment advisory firm accused of recommending that clients invest in particular mutual funds without disclosing a key conflict of interest: the firm was in turn receiving compensation from the broker offering the funds.
An SEC Enforcement Division investigation found that Robare Group Ltd. received a percentage of every dollar that its clients invested in certain mutual funds through an undisclosed compensation agreement with the brokerage firm.  Therefore, unbeknownst to investors, Robare Group and its co-owners had an incentive to recommend these funds to clients over other investment opportunities and generate additional revenue for the firm.  Robare Group ultimately received approximately $440,000 in such payments from the brokerage firm during an eight-year period.    
“Payments to investment advisers for recommending certain types of investments may taint their ability to provide impartial advice to their clients,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit.  “By failing to fully disclose its agreements with the brokerage firm, Robare Group deprived its clients of important information they were entitled to receive.”

The Asset Management Unit has undertaken an enforcement initiative to shed more light on undisclosed compensation arrangements between investment advisers and brokers.  For example, the SEC previously charged an Oregon-based investment adviser for failing to disclose revenue sharing payments and other conflicts of interest to clients.
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