Registered Investment Adviser Cambridge Investment Research Advisors Charged by SEC with Failing to Disclose Conflicts

INVESTORS: Registered Investment Adviser Cambridge Investment Research Advisors was charged by the SEC with failing to disclose conflicts arising from mutual fund and account recommendations.

On March 2, 2022, the SEC announced charges against registered investment adviser Cambridge Investment Research Advisors (“CIRA”) after allegations of failing to disclose material conflicts of interest and breaching its duty of care related to its selection of mutual funds and wrap accounts for clients.

The SEC’s complaint alleged that since at least 2014, CIRA repeatedly breached its fiduciary duty to advisory clients by failing to disclose material conflicts of interest. In particular, the complaint alleges that CIRA invested client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to an affiliated broker-dealer, Cambridge Investment Research, Inc., instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing. Also allowing CIRA to avoid paying millions of dollars in transaction fees.

Additionally, the SEC alleged that CIRA converted hundreds of accounts to its more expensive wrap account program without adequate disclosure and without analyzing whether doing so was in its clients’ best interests. The complaint further alleges that CIRA failed to disclose that its investment adviser representatives received compensation in the form of forgivable loans in exchange for meeting certain criteria such as maintaining certain asset levels and tenure with CIRA.

The complaint charges CIRA with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, and seeks a permanent injunction, disgorgement including prejudgment interest, and civil penalties.

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