The SEC has charged Founders Asset Management LLC of Denver with defrauding its clients in a soft-dollar arrangement with an investment advisor, according to an SEC filing. The commission has issued $790,000 in fines against the firm and Bjorn Borgen, its former president.
The firm is accused of failing to disclose to clients that it used their brokerage commissions to pay for client referrals, failed to disclose a change in its order-execution policy and failed to obtain best execution trades, the filing says.
The fines are part of a settlement reached June 15 between the SEC, Founders and Borgen, said Bridgett Richards, a spokesperson for the company.
Borgen agreed to a 180-day suspension from associating with any investment adviser and Founders has agreed to be censured, the filing says. Founders will pay a $50,000 civil penalty while Borgen will pay $150,000 in civil penalties and is required to reimburse $590,000 to clients who were affected by the arrangement, according to the filing.
Bjorn resigned as the firm's president in 1998 when the firm was sold to The Dreyfus Corp. of New York, according to Richards.
In its investigation, the SEC found that Founders negotiated a private agreement with William O. Foster, a registered representative, by which it gave trades to broker-dealers that had an association with Foster, according to the filing. The trades served as compensation to Foster for client referrals he gave to Founders, the filing says.
Further, the arrangement between Foster and Founders required that the firm change its order-execution policy, resulting in higher trade commissions for some of the firm's private accounts, the filing says. The change allowed the firm to unbundle trade orders and execute them separately instead of in blocks of similar securities. Under the arrangement, the firm's private accounts paid commissions of 20 cents per share for each trade while the firm's funds paid between six and eight cents per trade, the filing says.
