SEC Orders Investment Adviser to Pay Over $1.2 Million and Return Funds to Clients Harmed by Undisclosed Conflicts

ADMINISTRATIVE PROCEEDING
File No. 3-20357

June 2, 2021 - The Securities and Exchange Commission today announced settled charges against Centaurus Financial, Inc., a dually-registered investment adviser and broker-dealer based in California, for its disclosure failures and misleading statements to clients regarding investment advice it gave about mutual funds and cash sweep money market funds.

The SEC's order finds that engaged in practices that violated its fiduciary duty to its advisory clients. For example, the order finds that Centaurus made misleading statements and provided inadequate disclosures regarding its receipt of 12b-1 fees from client investments, and although Centaurus was eligible to self-report to the Commission pursuant to the Division of Enforcement's Share Class Selection Disclosure Initiative, Centaurus did not do so. The order also finds that Centaurus received revenue sharing from its investment in certain mutual funds and cash sweeps without fully and fairly disclosing the conflict of interest to its clients. According to the order, Centaurus breached its duty to seek best execution by causing certain advisory clients to invest in fund shares that charged 12b-1 fees when share classes of the same funds were available to the clients that presented a more favorable value under the particular circumstances in place at the time of the transactions. Finally, the order finds that Centaurus failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.

The SEC's order finds that Centaurus violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, CFI consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $907,377, prejudgment interest of $124,019, and a civil penalty of $250,000. CFI has also agreed to distribute funds to harmed clients and comply with certain undertakings.

The SEC's investigation was conducted by Payam Danialypour and Gary Y. Leung, both of the Asset Management Unit in the Los Angeles Regional Office. John Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.