Cadaret Grant, a registered investment advisor and broker-dealer, has agreed to a $6 million settlement to resolve SEC allegations of undisclosed compensation received from an outside firm.
The SEC claims that Cadaret Grant breached its fiduciary duty by failing to disclose various fee markups and revenue-sharing payments received from an unaffiliated clearing broker.
A spokesperson for Cadaret Grant stated, "We are pleased to have reached a resolution that benefits all parties. As a matter of policy, we do not discuss regulatory matters publicly." The firm, based in Syracuse, N.Y., settled without admitting or denying the allegations.
The SEC outlined several arrangements between Cadaret Grant and the clearing broker that allegedly provided additional compensation to the firm. One significant issue involved the sale of high-cost mutual fund share classes when lower-cost options were available to clients. These high-fee share classes have been a focus of the SEC for years, and the commission has warned that firms not disclosing such practices would face severe penalties.
The SEC accused Cadaret Grant of breaching its best-execution duty by directing clients to expensive share classes and failing to have policies to assess the most appropriate share classes for clients. Additionally, the firm allegedly received undisclosed revenue-sharing payments from its clearing broker related to certain mutual funds and money-market funds, and also marked up the clearing broker's transaction fees.
As part of the settlement, Cadaret Grant agreed to a censure and to pay over $6 million, including a $1 million civil penalty, $4.2 million in disgorgement, and $828,075 in interest.
