The SEC sued Commonwealth in 2019, alleging the company didn’t provide enough information to clients about conflicts of interest that could drive the firm to choose more expensive investments.
Commonwealth disclosed certain fees received from National Financial Services LLC, which maintained custody of Commonwealth’s clients’ assets. But Commonwealth described the conflict merely as “potential” and said it “may” have incentives to select costlier investments, the SEC said.
Commonwealth actually had a conflict and those incentives actually existed, the agency said in its complaint. The SEC won a court ruling against Commonwealth on April 7 in the US District Court for the District of Massachusetts, when Judge Indira Talwani agreed the disclosures weren’t good enough.
“Commonwealth presents the payments it receives from the revenue sharing arrangement as a hypothetical rather than disclosing it as a matter of fact,” Talwani wrote.
Source: Hypothetical Scenario Disclosures by Companies Risk SEC Scrutiny