On April 4, 2017, the U.S. Securities and Exchange Commission announced that Credit Suisse Securities (USA) LLC and one of its former investment adviser representatives, Sanford Michael Katz, agreed to pay almost $8 million to settle charges that they improperly invested clients in more expensive “Class A” shares of mutual funds rather than less expensive “institutional” shares for which they were eligible.
The SEC’s orders found that Credit Suisse and Katz both breached their fiduciary duties, failed to adequately disclose the conflict of interest created by such investments as they enriched themselves at their clients’ expense, and with deficiencies in compliance policies and procedures.
Class A shares are generally more expensive than institutional shares of the same fund because they charge investors marketing and distribution expenses known as 12b-1 fees that are paid out of the assets of the mutual fund. In this case, the 12b-1 fees were paid by the mutual funds to Credit Suisse, which then shared a portion of those fees with Katz.
According to the SEC’s orders, between January 1, 2009 and January 21, 2014, Credit Suisse collected approximately $3.2 million in avoidable 12b-1 fees from clients in its Discretionary Managed Portfolio program, and approximately $2.5 million of that amount was generated from Katz’s advisory clients. Credit Suisse also failed to implement policies and procedures to prevent these fiduciary breaches.
Credit Suisse and Katz will collectively pay disgorgement of $3,224,483, prejudgment interest of $577,678, and penalties totaling $4.125 million. Credit Suisse and Katz also consented to censures and the entry of cease-and-desist orders from committing or causing further violations of these provisions.
If you are an individual or institutional investor who has any concerns about your investments with Credit Suisse Securities (USA) LLC, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).