Soft Dollar Arrangements Once Again Headline SEC Enforcement Efforts

A San Diego-based investment firm and two of the firm’s advisers have been charged with misusing soft dollars and “cherry-picking” more favorable trades to certain clients. Securities and Exchange Commission (“SEC”) Administrative Law Judge Brenda P. Murray ruled that the firm, the firm’s president, and its portfolio manager “breached their responsibilities to act in their clients’ best interests and committed other securities law violations.”

Judge Murray found that the firm’s president misused more than $1.1 million in soft dollars for a divorce settlement to his ex-wife, rental house payments, and timeshare payments. The firm’s president has been ordered to pay a $3 million penalty and the firm’s portfolio manager has been fined $410,000 for aiding and abetting in the soft-dollar misuse. The firm’s president and portfolio manager have both been barred from the securities industry. Judge Murray has also ordered the firm to pay a $15 million penalty and $1.4 million disgorgements.

Core Compliance & Legal Services, Inc.’s (“Core Compliance”) June 2014, Risk Management Update (“RMU”) Soft Dollars and Disclosure provide practical guidance on soft dollar arrangements and regulatory compliance considerations. The RMU describes “soft dollars” as a term “used to describe that research, brokerage services and/or other benefits provided by a brokerage firm to an investment adviser as a result of commission revenue generated by securities transactions executed by that broker-dealer, in lieu of direct payments by the manager (also known as “hard dollars”).” Please refer to the Risk Management update for important information on eligible and ineligible soft dollar expenses and guidance.

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GENERAL DISCLAIMER: Information contained within this blog does not create a business-client relationship, and none of the content of this blog can be deemed to be consultive business advice.


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