May 06, 2019

Jim Lundy Discusses DC Circuit Ruling On Disclosure Failures in InvestmentNews

Chicago partner Jim Lundy was quoted in an InvestmentNews article titled “Federal Appeals Court Rules against Advisers on Disclosure Failure.” The article discussed the Robare & Jones Wealth Management case, in which the federal court ruled that the firm failed to divulge conflicts of interest concerning revenue sharing related to the sale of mutual funds, but that it did not do so willingly; vacated the civil penalties; and sent the case back to the Securities and Exchange Commission.

The decision will likely impact the SEC Division of Enforcement Asset Management Unit’s aggressive efforts to investigate revenue-sharing conflicts and disclosures following the SEC’s Share Class Selection Disclosure Initiative. The SEC has started conducting enforcement investigations of advisory firms that did not self-report, but expanded those investigations to include revenue-sharing issues. Further, the SEC has opened numerous additional investigations regarding revenue sharing around the country. Jim noted that the DC Circuit’s decision regarding the disclosures and conflicts strengthens the SEC Division of Enforcement’s hand.

“This is a precedent that may embolden the asset management unit to be aggressive regarding the disclosure requirements of RIAs,” said Jim, adding that investment advisors should review their Form ADV disclosures and sharpen language about conflicts of interested based on financial incentives.

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