The Securities and Exchange Commission (SEC) hit BB&T Securities with a penalty and ordered them to return money to investors as part of an enforcement action against a firm the company acquired.
Specifically, BB&T faces a $500,000 penalty to settle charges that a company it acquired misled its advisory clients into believing they were receiving full service brokerage services in-house at a discount while less expensive options were available externally.
BB&T agreed to the settlement and to return more than $5 million to retail investors.
The SEC said the company BB&T acquired, Valley Forge Asset Management, used misleading statements and inadequate disclosures about its brokerage services and prices to convince customers to choose the in-house broker. The SEC found that Valley Forge did not provide any additional services to advisory clients using its in-house brokerage than it did to advisory clients who chose other brokerages with significantly lower commission rates. Valley Forge charged commissions averaging roughly 4.5 times more than what clients would have paid using other brokerage options, and the firm obscured the price difference by claiming that it was giving clients a 70 percent discount off of its supposed retail commission rate, the SEC said.
“Valley Forge put its own interests ahead of its advisory clients, causing them to spend more money unnecessarily by portraying inaccurate costs and benefits of using its in-house brokerage,” Kelly Gibson, associate director of enforcement in the SEC’s Philadelphia Regional Office, said. “Dual registrants and advisers with affiliated broker-dealers must accurately disclose all conflicts of interest arising from their brokerage arrangements. The SEC’s examination and enforcement programs will continue to identify these types of violations and return money to harmed retail investors as quickly as possible.”
BB&T Securities consented to a cease-and-desist order, a censure, and agreed to pay disgorgement of $4,712,366 and prejudgment interest of $497,387, which it will distribute to affected current and former clients through a Fair Fund, as well as a $500,000 penalty. Also, BB&T Securities ended Valley Forge’s existing directed brokerage program.