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The company wants to limit the amount of damages it must pay from $5 million to $24 million.
Commonwealth Financial Network could still have to pay up to $111.5 million in damages related to a nearly five-year-old Securities and Exchange Commission case complaint The company is fighting, although investment advisers don’t expect it to record losses of more than $24 million.
The SEC sued Commonwealth in 2019, alleging that the firm failed to disclose conflicts of interest in revenue-sharing programs with clearing firms from at least July 2014 to December 2018, violating its fiduciary duties to advisory clients. he claimed.
Specifically, Commonwealth notes that while some mutual fund share classes generate millions of dollars in revenue-sharing payments for the company, other less expensive share classes generate much less additional revenue. The SEC alleges in the complaint that the company failed to tell customers that the company would not have produced the product at all, or it would not have been produced at all. In the United States District Court for the District of Massachusetts.
The complaint also alleges that the Commonwealth failed to adopt and implement written policies and procedures reasonably designed to identify and ensure disclosure of material conflicts of interest arising from revenue sharing agreements. , the Commonwealth noted in a statement. report It was filed with the SEC last month.
Commonwealth does not comment on pending legal matters as a matter of corporate policy, Peggy Ho, senior vice president, general counsel and chief risk officer, told ThinkAdvisor in an email on Friday.
In April 2023, the District Court ruled that the Commonwealth’s failure to fully disclose conflicts of interest from revenue distributions received with respect to certain mutual fund share classes and its failure to implement written policies and policies We granted summary judgment finding that the Advisers Act had been violated. The filing documents state that procedures are required to disclose revenue-sharing fees.
In May, the company filed a motion asking the court to reconsider its decision, and in June, the SEC filed a motion to enter a final judgment seeking $111.5 million in damages. In response, the Commonwealth filed a memorandum objecting to the SEC’s allegations in July.
Although the court last month denied the Commonwealth’s motion for reconsideration, the company’s position remains that the SEC failed to prove the necessary causation and that disgorgement was not necessary, the Commonwealth wrote in its report, and the court has not yet determined that disgorgement was necessary. He added that he had not made a ruling. Regarding other pending claims from the SEC or the Company.
“Based on the company’s position that the SEC did not show causation, the company’s estimates of potential penalties, and the company’s alternative theories of damages, the company believes that a reasonable range of losses is between $5 million and $2,400. I believe it’s between $1 million.”
“As of December 31, 2023, the Company has concluded that no amount within the estimate is more likely than any other amount, and therefore, as of December 31, 2023, the Company has concluded that no other amount is more likely than any other amount, and therefore, as of December 31, 2023, is included in accrued liabilities in the statement of financial position,” the Commonwealth added.
The 2019 action was part of the SEC’s crackdown on widely reported failures by companies to disclose 12b-1 fees and other profit-sharing arrangements to mutual fund investors. Dozens of companies paid fines.
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