The Securities and Exchange Commission (SEC) and New York-based investment adviser Zoe Financial settled their case on Monday.
Zoe Financial had been charged with failing to fully and fairly disclose to its clients and prospective clients material facts concerning conflicts of interest. The company did not admit to the SEC’s findings, but agreed to a cease-and-desist order, a censure, and to pay a civil monetary penalty of $450,000.
“Investment advisers have a fiduciary obligation to fully and fairly disclose material conflicts of interest,” Sheldon Pollock, SEC New York Regional Office associate director, said. “Advisers must live up to those disclosure obligations in all aspects of their advisory services, including when they offer a new technology or new feature to their clients.”
Zoe Financial operated a referral service that used an algorithm to match third-party investment advisers in its network with individuals seeking a recommendation for an investment adviser. The SEC’s order found that the company financial incentive to encourage advisers to use its network and that the algorithm did not consider whether an adviser used Zoe Wealth when it generated recommendations. The company’s salespeople often suggested advisers that had not been initially recommended by the algorithm.
The order found that Zoe Financial willfully violated Section 206(2) of the Investment Advisers Act of 1940.