SEC Fines Cambridge RIA $15 Million for Nondisclosure, Breaching Fiduciary Duty

The U.S. Securities and Exchange Commission obtained a final judgment by consent against Cambridge Investment Research Advisors Inc., or CIRA, a registered investment adviser based in Fairfield, Iowa. The SEC had charged CIRA with failing to disclose material conflicts of interest and breaching its duty of care related to its recommendation to place clients in wrap accounts and its selection of mutual funds and money market sweep funds for clients.

The SEC’s complaint in March 2022, alleged that since at least 2014, CIRA repeatedly breached its fiduciary duty to advisory clients by investing client assets in certain mutual funds and money market sweep funds that generated millions of dollars in revenue sharing payments to an affiliated broker-dealer, Cambridge Investment Research Inc., i.e., CIRI, instead of lower-cost share classes and investment options that would have yielded less or no revenue sharing.

The complaint further alleged that CIRA converted hundreds of accounts to its more expensive wrap account program – which charges all-in fees that cover not only investment advisory fees, but also transaction fees – without adequate disclosure and without analyzing whether doing so was in its clients’ best interests.

CIRA also avoided paying millions of dollars of transaction fees as a result of its mutual fund recommendations. The SEC complaint said that CIRI additionally offered incoming advisers five-year forgivable loans to cover costs associated with their transition to CIRA from other firms. The forgivability of those loans hinged on the advisers maintaining specific asset levels and tenure with CIRI, creating a financial incentive for the advisers to maintain a relationship and recommend CIRA to clients, according to the complaint.

CIRA consented to entry of the final judgment, without admitting or denying the allegations in the complaint, permanently enjoining it from violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

The final judgment further orders CIRA to pay $15 million in monetary relief, consisting of $10,164,698 in disgorgement, $3,035,302 in prejudgment interest, and a $1,800,000 civil penalty, and to administer the distribution of such amounts to harmed clients. In connection with the final judgment, the SEC dismissed its relief defendant claim against CIRI.

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