SEC CHARGES ADVISORY FIRM FOR FAILING TO DISCLOSE MULTIPLE CONFLICTS OF INTEREST

 If you plan to sit for the Series 66 exam, make sure that you are familiar with the SEC's policy on  Ethical Practices and Fiduciary Responsibilities, what they are and how you can avoid violating them. 

Bob Eder in his Study for the Series 66 Exam devotes a whole chapter to Ethical Practices and Fiduciary Responsibilities.

Here is an interesting news release from the SEC describing one investment adviser's taking undisclosed monies from a movie producer as compensation for recommending investing in films of that production company.

Warning: Don't take undisclosed money or compensation in return for steering your clients to specific investments!

SEC Charges Hudson Valley Wealth Management Advisory Firm and Founder for Failing to Disclose Conflicts of Interest

Firm owner received undisclosed fee for investing clients’ money in films

FOR IMMEDIATE RELEASE
2024-55

Washington D.C., May 14, 2024 —

The Securities and Exchange Commission today announced settled charges against New York-based registered investment adviser Hudson Valley Wealth Management Inc. and its founder, Christopher Conover, for breaching their fiduciary duties by failing to disclose conflicts of interest and making misleading statements to their clients. To settle the charges, Hudson Valley agreed to pay a civil penalty of $200,000, and Conover agreed to pay more than $600,000 in disgorgement and prejudgment interest and a $150,000 civil penalty.

According to the SEC’s order, between September 2017 and October 2021, Hudson Valley and Conover advised a private investment fund and their individual clients to make investments in films produced by a particular film production company. At the same time, Conover, through his affiliated company, received approximately $530,000 from the production company in exchange for the money that the investment fund and the individual clients invested in these same films. Hudson Valley and Conover initially failed to disclose these payments to the clients and then later misrepresented that Conover earned this compensation for work as an executive producer on these films.

In addition, the SEC’s order finds that, in May 2021, Hudson Valley and Conover satisfied a redemption request from one fund investor but did not satisfy several redemption requests submitted at the same time by other fund investors who were Hudson Valley advisory clients. By preferencing one investor’s redemption request over other client redemption requests, Hudson Valley and Conover violated their fiduciary duties to the other clients.

“Fully and fairly disclosing conflicts of interest are at the heart of an investment adviser’s fiduciary duty,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Investors must have confidence that their investment advisers are treating them fairly and acting in their best interest when investing their funds.”

The SEC’s order finds that Hudson Valley and Conover violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to disgorgement and penalties, Hudson Valley and Conover agreed to cease-and-desist orders and censures.

https://www.sec.gov/news/press-release/2024-55

Ethical Practices and Required Disclosures are important for those planning to sit for the Series 66 Exam. Bob Eder discusses Required Disclosures and Ethical Practices in his Study for the Series 66 Exam.

NASAA publishes Series 66 Test Specifications, and you can find the provisions of Ethical Practices and Required Disclosures in Section IV (G) & (H).

Here is the link to NASAA's Test Specifications for the Series 66 Exam. See Section IV (G) (5) (1-5) covering Communications with Clients and Required Disclosures.

Study for the Series 66 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's Series 66 book on Amazon. 

For questions about Bob Eder's Series 66 Manual, Study for the Series 66 Exam, or questions in general about the Series 66 Exam, or about Ethical Practices and required Disclosures to Clients, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. 

See Bob Eder's Author Page on Amazon.com.

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