A controversial ruling suggests an honest face may be the best defense for an advisor up on charges of breaching CRM2 disclosure requirements.
A new court judgement suggests advisors facing allegations they breached CRM2 disclosure requirements will have to be very convincing under cross-examination if they want to get away with it.
“In listening to Mr. [Mark] Robare and Mr. [Jack] Jones testify and observing their demeanor under cross-examination, it is difficult to imagine them trying to defraud anyone, let alone their investment clients,” wrote SEC Administrative Law Judge James E. Grimes in his 44-page decision filed late last week. “They came across as honest and committed to meeting their disclosure requirements. Indeed, their belt-and-suspenders approach to compliance, through which they relied on multiple firms, including Triad and Renaissance, to ensure the Robare Group was compliant with its disclosure obligations belies any argument that Mr. Robare or Mr. Jones acted with intent to deceive, manipulate, or defraud anyone.”
Robare and Jones are advisors with Robare & Jones, a Houston-based RIA managing more than $350 million in client assets.
They ran afoul of the SEC by failing to correctly disclose payments received from Fidelity for selling third-party funds to clients. All of this information is supposed to be made available to clients and potential clients in the second part of Form ADV, the document advisors must provide the SEC in order to register with them and state securities authorities. That disclosure is similar to what Canadian advisors can expect under the full-implement of CRM2.
In addition to highlighting the duo’s commitment to compliance issues in his decision, the judge also rationalized his decision by suggesting a majority of their clients’ assets were invested in funds that didn’t provide third-party revenue sharing including Fidelity’s own index funds.
Not everyone believes the decision was an appropriate one. The SEC itself is reviewing the decision.
“This may reflect, in part, an [administrative law judge's] sensitivity to recent allegations that ALJs are SEC lapdogs,” Mercer Bullard, a former SEC lawyer who now directs the Business Law Institute at the University of Mississippi School of Law, wrote. “If the defendants' conduct was not at least negligent, I don't know what would be.”
It remains to be seen if advisors here in Canada will be able to skate past disclosure troubles once CRM2 implementation is complete in July 2016.
“In listening to Mr. [Mark] Robare and Mr. [Jack] Jones testify and observing their demeanor under cross-examination, it is difficult to imagine them trying to defraud anyone, let alone their investment clients,” wrote SEC Administrative Law Judge James E. Grimes in his 44-page decision filed late last week. “They came across as honest and committed to meeting their disclosure requirements. Indeed, their belt-and-suspenders approach to compliance, through which they relied on multiple firms, including Triad and Renaissance, to ensure the Robare Group was compliant with its disclosure obligations belies any argument that Mr. Robare or Mr. Jones acted with intent to deceive, manipulate, or defraud anyone.”
Robare and Jones are advisors with Robare & Jones, a Houston-based RIA managing more than $350 million in client assets.
They ran afoul of the SEC by failing to correctly disclose payments received from Fidelity for selling third-party funds to clients. All of this information is supposed to be made available to clients and potential clients in the second part of Form ADV, the document advisors must provide the SEC in order to register with them and state securities authorities. That disclosure is similar to what Canadian advisors can expect under the full-implement of CRM2.
In addition to highlighting the duo’s commitment to compliance issues in his decision, the judge also rationalized his decision by suggesting a majority of their clients’ assets were invested in funds that didn’t provide third-party revenue sharing including Fidelity’s own index funds.
Not everyone believes the decision was an appropriate one. The SEC itself is reviewing the decision.
“This may reflect, in part, an [administrative law judge's] sensitivity to recent allegations that ALJs are SEC lapdogs,” Mercer Bullard, a former SEC lawyer who now directs the Business Law Institute at the University of Mississippi School of Law, wrote. “If the defendants' conduct was not at least negligent, I don't know what would be.”
It remains to be seen if advisors here in Canada will be able to skate past disclosure troubles once CRM2 implementation is complete in July 2016.
