Defendant Name:
FSC Securities Corporation
Defendant Type:
Subsidiary of Public Company
Public Company Parent:
American International Group, Inc.
SIC Code:
6331
CUSIP:
02687478
Document Reference:
34-77362
Document Details
Legal Case Name
In the Matter of Royal Alliance Associates, Inc., SagePoint Financial, Inc. and FSC Securities Corporation
Document Name
Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order
Document Date
14-Mar-2016
Document Format
Administrative Proceeding
Allegation Type
Investment Advisers/Investment Companies
Document Summary
On March 14, 2016, the SEC instituted settle administrative and cease-and-desist proceedings against Royal Alliance Associates, Inc., SagePoint Financial, Inc. and FSC Securities Corporation. According to the SEC: "This proceeding arises from breaches of fiduciary duty and multiple compliance failures by Respondents Royal Alliance, SagePoint and FSC in their feebased advisory businesses. American International Group, Inc. ('AIG') indirectly owns Respondents, which comprise one of the largest networks of independent, dual-registered broker-dealers and investment advisers in the U.S. From at least 2012 to 2014, Respondents invested advisory clients in mutual fund share classes with 12b-1 fees instead of lower-fee share classes of the same funds that were available without 12b-1 fees. The affected clients were advisory clients whom Advisor Group Firms invested in a fee-based advisory service called the Advisor Managed Portfolio ('AMP') in accounts that are not qualified retirement or ERISA accounts, where 12b-1 fees are rebated. In their capacity as broker-dealers, Respondents received 12b-1 fees paid by the funds in which AMP advisory clients invested. By investing these non-qualified advisory clients in the higher-fee share classes, Respondents received approximately $2 million in 12b-1 fees that they would not have collected from the lower-fee share classes. Respondents failed to disclose in their Forms ADV or otherwise that they had a conflict of interest due to a financial incentive to place non-qualified advisory clients in higher-fee mutual fund share classes. As a result, Respondents breached their fiduciary duties as investment advisers to certain of their AMP advisory clients by investing them in higher-fee mutual fund share classes. In addition, Respondents failed to adopt any compliance policy governing mutual fund share class selection. During 2013, Respondents also failed to monitor advisory accounts quarterly for inactivity or 'reverse churning' as required under their compliance policies and procedures to ensure that fee-based advisory or 'wrap' accounts that charged an inclusive fee for both advisory services and trading costs remained in the best interest of clients that traded infrequently. Even though Commission examination staff previously had cited the firms for failing to conduct such monitoring several years earlier, Respondents did not conduct their inactive account review on a timely basis for the fourth quarter of 2012 and the first and second quarters of 2013."
Disgorgement & Penalty Information
Resolutions
Cease and Desist Order
Censured
Compliance Related Independent Consultant
Various undertakings
Cooperation Before the Resolution
Remedial Acts or Efforts Before the Resolution
Monetary Penalties:
Disgorgement
Individual:
Shared:
$1,956,460.00
Shared with: Shared Royal Alliance Associates, Inc.; SagePoint Financial, Inc.
Civil Penalty
Individual:
Shared:
$7,500,000.00
Shared with: Shared Royal Alliance Associates, Inc.; SagePoint Financial, Inc.
Pre-Judgment Interest
Individual:
Shared:
$93,399.00
Shared with: Shared Royal Alliance Associates, Inc.; SagePoint Financial, Inc.
Other Defendants in Action:
