12b-1 Fees Still on SEC's Radar as SCF Agrees to Repay $567K

"The newer piece is the revenue sharing component. [They got SCF] for revenue sharing — it has to do with money market sweep funds," Lundy explained.

"The last time the SEC brought a case even remotely on that theory was back in 2011, so this is the first case in almost a decade that goes into detail regarding revenue sharing violations related to money market sweep funds,"  he added.

Details of Violations

SCF engaged in several practices that violated its fiduciary duty to its clients, the SEC alleged.

First, the order found that, since at least Jan. 1, 2014, SCF bought, recommended or held certain mutual fund share classes for its advisory clients that charged 12b-1 fees that were received by SCF's affiliated BD, SCF Securities, instead of lower-cost share classes of the same funds that were available to clients.

Second, the order found that, since at least March 1, 2017, SCF purchased or recommended for advisory clients certain money market funds for which SCF received revenue sharing payments from its clearing broker, without disclosing receipt of this compensation to clients. As a result, some SCF clients received lower performance on these investments than they would have otherwise received, the SEC claimed.

As stated in the order, SCF failed to disclose those practices or related conflicts of interest to its clients.

The order also found that SCF failed to adopt and implement policies and procedures designed to prevent violations of federal securities laws regarding its mutual fund and money market sweep fund share class selection practices, and that SCF violated its duty to seek best execution.

In addition, SCF did not self-report to the SEC pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative, even though it was eligible to do so, the regulator alleged.