Commonwealth girding for loss of up to $24M in fight with SEC
As a result of its five-year legal skirmish with the Securities and Exchange Commission over alleged conflicts, Commonwealth Financial Network is preparing for a potential fine and loss of between $5 million and $24 million, according to a filing at the end of February with the SEC.
The disclosure of the potential fine is the result of Commonwealth Financial Network, with 2,200 financial advisors across its brokerage and registered investment advisor platform and $296 billion in client assets, pushing back against the SEC after the agency sued the firm in 2019, and deciding to litigate the matter as opposed to settling it.
It’s highly unusual in the securities industry for a broker-dealer to put up such resistance to a regulator like the SEC; many senior executives fear any potential backlash from a regulator.
In its complaint from five years ago, the SEC alleged that the firm, in its role as an RIA from July 2014 through December 2018, failed to disclose material conflicts of interest related to certain revenue-sharing agreements with its clearing firm.
The SEC claimed Commonwealth had breached its fiduciary duty by failing to tell its clients that they could have invested in less-expensive share classes of funds.
Two months after the SEC sued Commonwealth Financial Network, the firm shot back at the charges by the SEC that it failed to disclose material conflicts of interest related to revenue-sharing. The firm’s clients were not deceived by any fee payments or revenue-sharing payments, according to a Commonwealth court filing in October 2019.
Since then, the SEC’s complaint has been working its way through federal court in Boston, and last June the SEC filed a motion for entry of final judgment seeking damages in
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