SEC Settles With Nebraska RIA Over Fiduciary Breach
The SEC says it has reached a settlement with a Nebraska investment advisory firm charged with breach of fiduciary duty involving three funds it managed over the course of the previous decade.
The SEC determined that Manarin Investment Counsel, of Omaha, and its founder and president, Roland Manarin, arranged for the investment vehicles at issue -- which are funds of funds -- to purchase Class A shares of underlying mutual funds while cheaper, institutional shares of the same funds were available.
As a result, the Manarin-managed funds incurred what the SEC called "avoidable, and ongoing 12b-1 fees," that were then passed through to the firm's affiliated broker-dealer, Manarin Securities, also named as a respondent in the SEC's settlement -- and were ultimately paid by the investors.
"This practice was inconsistent not only with MIC's and Manarin's duty to seek best execution for the funds, but also with multiple disclosures by the respondents," the SEC said in its order.
"Throughout the relevant period, many investment funds in which the funds held shares offered both Class A shares, which carried 12b-1 fees, and institutional shares, which did not. Although the funds often met the eligibility criteria for institutional shares (which were set forth in investment fund prospectuses), MIC and Manarin consistently caused the funds to invest instead in Class A shares with higher fees," the agency added.
The three funds were Lifetime Achievement Fund, a mutual fund launched by Manarin in 2000, and Pyramid I Limited Partnership and Pyramid II Limited Partnership, private partnerships created by Manarin in 1989 and 1995, according to the SEC.
The firm did not respond to a request for comment on the settlement.
$3.3 MILLION IN FEES
The firm engaged in the improper purchase of Class A shares from at least June 2000 through mid-2010, according to the SEC, with Manarin Securities accumulating $3.3 million in fees that were deducted from the funds' assets.
Manarin and his two firms accepted a censure and agreed to pay more than $1 million to settle the charges, the SEC says.
"Investment advisers must fulfill their fiduciary duty of best execution when selecting mutual fund shares for their clients," Marshall Sprung, co-chief of the SEC Enforcement Division's Asset Management Unit, said in a statement. "Manarin and his firm breached that duty by choosing more expensive shares that would pay higher fees to an affiliate when their clients were eligible to own lower-cost shares in the very same mutual funds."
The agency also says that from at least October 2008 through December 2011, the broker-dealer charged commissions on mutual fund transactions above the normal rate for commissions on securities-exchange transactions, violating federal securities laws in the process.
Manarin Investment Counsel has been registered with the SEC as an investment advisor since 1983, the SEC notes. In a regulatory filing, the firm said it operates as an advisor to the funds in question and to some 1,300 distinct accounts, with $549 million in total assets under management as of May.