Securities Cases: SunTrust Settles Improper Mutual Fund Fee Charges for $1.1M, Ex-Morgan Stanley Barred Over Client He Later Married, and Two RIAs Are Barred for Cherry Picking

SEC Charges SunTrust With Collecting Over $1.1M in Excess Mutual Fund Fees
The US Securities and Exchange Commission has filed charges accusing SunTrust Investment Services of collecting over $1.1M in unwarranted fees from mutual fund clients. The SunTrust Banks subsidiary will pay an over $1.1M penalty to resolve the regulator’s civil charges.

According to the regulator’s order, SunTrust Investment Services improperly recommended costlier mutual fund share classes to clients when less expensive shares of these funds were available. The SEC says this was a breach of the investment services firm’s fiduciary duty to take actions in the client’s best interests.

The more expensive mutual fund share classes that it recommended to clients charges 12b-1 fees for marketing and distribution. These same clients were eligible to avail of less expensive share class options that did not charge these fees. Instead, the customers were purportedly not notified that they could select these less costly alternatives. Meantime, the fees they could have avoided but ended up paying went to SunTrust in the former of higher fund commissions.

In the wake of the SEC’s probe, SunTrust on its own started reimbursing these overcharged fees plus interest to clients. SunTrust consented to pay the penalty, in addition to disgorgement and interest on any 12b-1 fees that are leftover.

Two Registered Investment Advisers Barred For Cherry Picking
The SEC has barred Jeremy Licht of JL Capital Management and Gary Howarth of Howarth Financial Services, of California and Oregon, respectively, for the way they allocated trades in client accounts, purportedly benefiting themselves while costing customers. Licht also must disgorge more than $88,500 in ill-gotten gains for allegedly cherry picking the more profitable trades for himself and sending a substantial amount of losing trades to clients. He will pay a $181K civil penalty. Meantime, Howarth must disgorge more than $38K, pay an over $5K prejudgment interest, and $160K in civil penalties.
Licht and Howarth are accused of making trades for client and personal accounts using an omnibus account. They allegedly waited to allocate the trades until they had gotten a chance to observe the intraday performance of the securities. It was only then, when they knew which trades were profitable, that they directed the profitable trades to themselves.

The two men settled without denying or admitting to the SEC’s charges in their respective cases, and they both agreed to be barred from the securities industry.

FINRA Bars Former Ex-Morgan Stanley Broker Who Later Married His Client
The Financial Industry Regulatory Authority has barred Michael J. O’Connor, an ex-Morgan Stanley (MS) broker, who was let go over his handling of the accounts of a client whom he eventually married. According to the FINRA settlement, the brokerage firm fired him earlier this year because of how he’d timed his disclosure regarding his financial arrangement with a client and his power of attorney over her. The client later became his wife. O’Connor refused to testify in FINRA’s case against him.

At Shepherd Smith Edwards and Kantas, LTD LLP, our investor fraud lawyers are happy offer a free initial, no obligation case consultation to help you determine whether you have grounds for a securities claim.

Read the SEC Order in the SunTrust Case (PDF)

The SEC Administrative Proceeding in the Two Cherry Picking Cases (PDF)

Finra bars former Morgan Stanley broker for dealings with client who later became his wife, InvestmentNews, September 13, 2017