On March 23, 2026, the U.S. District Court for the District of Massachusetts issued a final judgment with respect to an enforcement action originally filed by the SEC in 2019 in which the SEC alleged that a dually registered investment adviser and broker-dealer (the adviser) failed to disclose material conflicts of interest related to a revenue sharing agreement under which the adviser received revenue sharing payments from its clearing broker when the adviser invested client assets in certain classes of mutual funds.
In its 2019 complaint, the SEC alleged that the adviser failed to tell its clients that (i) in some instances mutual fund shares offered through a no transaction fee program offered by the broker had at least one lower-cost share class available for which the adviser received less or no revenue sharing payments, (ii) mutual fund investments were available that did not result in any revenue sharing payments to the adviser and (iii) the adviser received revenue sharing payments on certain mutual fund investments for which the adviser’s broker charged a transaction fee. The SEC alleged that the adviser violated Section 206(2) of the Investment Advisers Act of 1940, which prohibits investment advisers from directly or indirectly engaging in any transaction, practice or course of business which operates as a fraud or deceit upon a client or prospective client, and Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which requires, among other things, that a registered investment adviser adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder by the adviser and its supervised persons.
In April 2023, the District Court granted the SEC’s motion for summary judgment on both claims, and in March 2024 the District Court ordered the adviser to pay over $93 million in disgorgement, prejudgment interest and civil penalties. In April 2025, the U.S. Court of Appeals for the First Circuit vacated the $93 million judgment and remanded the case back to the District Court, finding that the materiality to a customer’s investment decision of the omitted revenue sharing disclosure was a question of fact to be decided by a jury and not by the District Court on summary judgment.
The SEC and the adviser agreed to settle the matter and filed a joint motion for final judgment, which the District Court granted on March 23, 2026, in which the adviser, without admitting or denying the SEC’s allegations, agreed to pay a $5 million civil penalty.
The final judgment was issued under the caption Securities and Exchange Commission v. Commonwealth Equity Services, LLC d/b/a Commonwealth Financial Network, No. 1:19-cv-11655.
