Crown Capital Securities, L.P. (“Crown Capital”), a dually-registered investment adviser and broker-dealer based in California, agreed to pay $1.6 million to settle charges brought by the Securities and Exchange Commission (“SEC”) over the firm’s disclosure failures regarding investment advice it gave about mutual funds and cash sweep money market funds. Specifically, the SEC alleged that the company did not disclose its conflicts of interests related to mutual fund share classes, cash sweep arrangements, and no-transaction-fee revenues.
Without admitting or denying the findings, Crown Capital consented to a cease-and-desist order, censure, and agreed to pay disgorgement of $1,138,740, prejudgment interest of $154,173, and a civil penalty of $295,000. The firm also agreed to distribute funds to harmed clients and comply with certain undertakings.
If you have lost money with Crown Capital, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Crown Capital.
SEC Administrative Proceeding File No. 3-20371
The SEC’s order, published on June 24, 2021, found that Crown Capital engaged in practices that violated its fiduciary duty to its advisory clients.
The order indicated that since at least 2014, Crown Capital invested clients in 1) mutual fund share classes that paid Crown Capital and its investment advisory representatives (“IARs,” who were also registered representatives) fees pursuant to Rule 12b-1 under the Investment Company Act of 1940; 2) certain mutual funds that also generated no-transaction-fee revenue for the firm; and 3) cash sweep products that likewise resulted in Crown Capital receiving revenue sharing.
Crown Capital, however, provided inadequate disclosures regarding its receipt of 12b-1 fees from client investments, and although the firm was eligible to self-report to the Commission pursuant to the Division of Enforcement’s Share Class Selection Disclosure Initiative, it failed to do so.
The SEC order also found that Crown Capital received revenue sharing from its investment in certain mutual funds and cash sweep money market funds without disclosing the conflict of interest to its clients.
According to the SEC, the firm further breached its duty to seek best execution by causing certain advisory clients to invest in fund shares that charged 12b-1 fees when share classes of the same funds were available to the clients that presented a more favorable value under the particular circumstances in place at the time of the transactions.
Finally, the order found that Crown Capital failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.
The SEC’s order alleged that Crown Capital willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.
FINRA Letter of Acceptance, Waiver, and Consent No. 2014038990602
In June 2019, Crown Capital and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) over the firm’s supervisory failures related to short-term switches of Class A mutual fund shares conducted by two registered representatives of the firm.
According to the AWC, between June 2011 and July 2014, Crown Capital failed to establish and maintain a supervisory system, including written supervisory procedures, for reviewing and monitoring mutual fund switches reasonably designed to achieve compliance with FINRA suitability requirements and failed to reasonably supervise short-term switches of Class A mutual fund shares conducted by two registered representatives of the firm. As a result, FINRA found that Crown Capital violated NASD Rule 3010(a), NASD Rule 3010(b), and FINRA Rule 2010.
Crown Capital voluntarily compensated the customers who sustained losses due to the unsuitable mutual fund switches conducted by the two representatives, paying a total of approximately $395,000 in restitution. The firm also consented to a censure and a $75,000 fine.
Crown Capital Securities, L.P. (CRD#: 6312)
Crown Capital is a dually registered broker-dealer and investment adviser. Crown Capital has been a member of FINRA since July 5, 1999, and is headquartered in Orange, California. The firm’s business lines include tax-sheltered and variable annuities, mutual funds, registered investment advisor and asset management services, limited partnerships, stocks, bonds, and alternative investments.
How to Recover Losses or Obtain a Free Consultation
If you have lost money with Crown Capital, contact New York securities arbitration lawyer Jorge Altamirano of Iorio Altamirano LLP at email@example.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.