RIA Fined $1.75M for Failure to Disclose Conflicts of Interest, Overbilling
The U.S. Securities and Exchange Commission announced settled charges against American Portfolios Advisors Inc., or APA, formerly a registered investment adviser based in Holbrook, N.Y., for failing to adequately disclose conflicts of interest, overbilling its clients, and, through its former chief compliance officer, Colin Michael Moors, and its former president, Gary Bruce Gordon, creating backdated documents and providing them to SEC staff during a compliance examination. The SEC also announced settled charges against Moors and Gordon for their conduct.
The firm, known as Advisor Group during the majority of the relevant period, purchased American Portfolios Financial Services Inc., an independent broker-dealer, in June 2022. In November 2022, Advisor Group was acquired by Osaic and in June 2023, it announced its decision to unify its various subsidiary firms – including American Portfolios Financial Services – under the Osaic brand.
A spokesperson for Osaic told third-party media that the conduct that is the subject of the order concerns practices that occurred prior to Osaic’s acquisition of APA, and that the order does not reference Osaic.
According to the order against APA, from at least August 2020 through March 2023, the adviser breached its fiduciary duty to some advisory clients by failing to fully and fairly disclose the nature and extent of conflicts of interest associated with certain compensation paid to its broker-dealer by an unaffiliated clearing broker in connection with trade execution and account services, resulting in additional costs to clients.
Specifically, the order found that APA did not disclose that the affiliated American Portfolios Financial Services charged fee markups on various types of transaction and account service fees, and instead misleadingly indicated that the unaffiliated clearing broker determined the amounts of the fees billed to APA clients. According to the order, APA also erroneously billed and collected advisory fees on alternative investment positions, although no fees were supposed to be assessed on those positions, and it failed to refund a pro rata portion of prepaid quarterly advisory fees when clients terminated their accounts, as provided in APA’s client agreements.
Further, the SEC’s order found that in response to a request for documents by SEC staff, Moors created and backdated compliance documents for three calendar years that purported to memorialize contemporaneous annual compliance reviews required by APA’s policies and procedures. According to the order, the three documents were signed and backdated by both Moors and Gordon and were provided to SEC staff.
The SEC’s order found that APA willfully violated Sections 204(a) and 206(2) of the Investment Advisers Act of 1940 and Rule 204-2(a)(17)(ii) thereunder. Without admitting or denying the order’s findings, APA consented to a cease-and-desist order, a censure, and a civil penalty of $1.75 million.
In separate orders against Moors and Gordon, the SEC found that they willfully aided and abetted and caused APA’s violation of Section 204(a) of the Advisers Act and Rule 204-2(a)(17)(ii) thereunder.
Without admitting or denying the orders’ findings, each of them consented to cease-and-desist orders and censures, Moors consented to a civil penalty of $10,000, and Gordon consented to a civil penalty of $20,000.
This wasn’t the first time that APA had been disciplined. In August 2024, the Financial Industry Regulatory Authority censured and fined broker-dealer American Portfolios Financial Services $225,000 for failing to implement adequate anti-money laundering, or AML, measures.
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