FOR IMMEDIATE RELEASE
Washington D.C. — The Securities and Exchange Commission today announced sanctions against a New York-based brokerage firm for ignoring red flags and paying more than $400,000 in soft dollars for expenses that an investment adviser had not properly disclosed to clients.
Soft dollars are credits or rebates from a brokerage firm on commissions that clients pay for trades executed in an investment adviser’s client accounts. If appropriately disclosed, an investment adviser may use the soft dollar credits to pay for such expenses as brokerage and research services that benefit clients.
An SEC investigation found that Instinet LLC approved soft dollar payments to San Diego-based investment advisory firm J.S. Oliver Capital Management despite clear signs that the payments were improper. The SEC’s Enforcement Division has separately charged J.S. Oliver and its president Ian Mausner for their alleged wrongdoing.
Instinet agreed to pay more than $800,000 to settle the SEC’s charges.
“Instinet repeatedly approved soft dollar payments despite clear warning signs that J.S. Oliver and Mausner were improperly using client funds for their benefit,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit. “Brokers perform a crucial gatekeeper function in approving soft dollar payments, and they cannot turn a blind eye to red flags that investment advisers may be breaching their fiduciary duty to clients.”
According to the SEC’s order instituting settled administrative proceedings, among the red flags that Instinet ignored while approving soft dollar payments to J.S. Oliver from January 2009 to July 2010:
The SEC’s order finds that Instinet willfully aided, abetted, and caused J.S. Oliver’s violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8. Instinet agreed to pay a penalty of $375,000, disgorgement of $378,673.76, and prejudgment interest of $59,607.66. The firm also must engage an independent compliance consultant to review its policies, procedures, and practices related to soft dollar payments. Without admitting or denying the SEC’s findings, Instinet also consented to a censure and a cease-and-desist order.
The SEC’s investigation was conducted by Ronnie B. Lasky and C. Dabney O’Riordan of the Enforcement Division’s Asset Management Unit in the Los Angeles Regional Office.