Commonwealth Still Grappling With SEC Over 12b-1 Fees

On Sept. 4, Commonwealth filed a motion opposing the securities regulator's third request for documents, stating "the Commission's motion concerns a so-called 'big data' production request, … that seeks materials that are not relevant to its claim, and that are not proportional to case needs given their burden on Commonwealth and on the efficient resolution of this litigation."

In its defense, the firm told the court that the SEC complaint "alleges that Commonwealth's Clearing Agreement with [National Financial Services] NFS/Fidelity created an incentive for Commonwealth to select and hold more expensive mutual funds/share classes which paid more revenue sharing to Commonwealth."

It added: "With respect to the [Preferred Portfolio Services] PPS Custom program, Commonwealth did not select and hold mutual funds/share classes that had higher expenses and paid more revenue sharing. As noted above, Commonwealth's Advisors are independent contractors that conduct business through entities which they establish, while disclosing their affiliation with Commonwealth."

The firm also filed a motion for protective order, seeking to indefinitely delay depositions.

"Both motions remain undecided, our motion for protective order and SEC's motion to compel production of certain data," Steve Crimmins, attorney for Commonwealth who's a partner at Murphy & McGonigle in Washington, told ThinkAdvisor Tuesday.

Both motions are now pending before the judge, Crimmins said.

Details on Allegations

The SEC alleges that Commonwealth's Clearing Agreement with NFS/Fidelity created an incentive for Commonwealth to select and hold more expensive mutual funds/share classes which paid more revenue sharing to Commonwealth.

"With respect to the PPS Custom program, Commonwealth did not select and hold mutual funds/share classes that had higher expenses and paid more revenue sharing," the Commonwealth attorneys argue in the brief.

Commonwealth's advisors "are independent contractors that conduct business through entities which they establish, while disclosing their affiliation with Commonwealth. Advisors solicit clients, negotiate advisory fees, and sign advisory agreements," according to the complaint.