We write separately to clarify our view that this Order should not be read to suggest that a statement that one fee is waived is not necessarily rendered misleading by the receipt of another fee. The Commission’s Order finds that National Trust and Fiduciary Services Company, Inc. (“NTFS”), a non-depository trust company, violated Sections 17(a)(2) and (3) of the Securities Act of 1933 when it stated that there were “no annual fees” for one of its product offerings, including by stating in trust instruments that the annual trustee fee was “waived.”[1] According to the Order, these statements were misleading because NTFS failed to disclose that: (1) trust assets were invested in mutual fund share classes that charged recurring Rule 12b-1 fees, and (2) these Rule 12b-1 fees were paid to a broker-dealer subsidiary of NTFS that routed the fees to NTFS after deducting its expenses and satisfying its net capital requirements.[2]

We are concerned that the public reading the Order will incorrectly assume that the Rule 12b-1 fee revenue received by NTFS was a substitute for payments of an annual trustee fee, resulting in violations of Sections 17(a)(2) and (3).[3] However, the Order does not provide factual support for this theory. Instead, the facts here are consistent with the facts underlying prior Commission enforcement actions for inadequate disclosure of Rule 12b-1 fees. In particular, the Order establishes that: (1) NTFS failed to adequately disclose in its marketing materials its receipt of Rule 12b-1 fees, and (2) monthly statements available to trust beneficiaries stated only that NTFS “may” receive Rule 12b-1 fees when, in fact, NTFS in all instances did receive Rule 12b-1 fees with respect to the product at issue.[4] NTFS’s failure to accurately disclose its receipt of Rule 12b-1 fees was itself a misrepresentation that should have formed the basis for the Section 17(a)(2) and (3) violations.

The attempt to tie these violations to NTFS’s seemingly accurate statements regarding its annual trustee fee has the potential to create confusion as to whether this enforcement action is intended to adopt a novel legal theory regarding the receipt of Rule 12b-1 fees. In our view, this Order should not be read to indicate that an entity is presumed to make a misstatement when it advertises the waiver of one type of fee but separately receives Rule 12b-1 fee revenue. Rather, we believe that this Order should be read to reaffirm the Commission’s long-standing position that – when an entity receives Rule 12b-1 fees – the receipt of those fees must be accurately disclosed.