A dual-registered Massachusetts-based company failed to disclose that it had revenue sharing arrangements with its clearing broker when it recommended and transferred unused cash in client accounts in certain money market funds, according to an order filed Monday by the Securities and Exchange Commission.
Cantella & Co., which operates out of Malden, MA, has been registered with the SEC as a broker / dealer since 1979 and as an investment advisor since 2002. The company works with just over 6,800 clients and has approximately $ 2.2 billion in regulatory assets under management, according to the commission’s order. It offers investment advisory services, as well as financial and retirement planning, children’s education planning and tax management.
Since at least January 2016, Cantella has recommended its clients to select certain money market funds for their uninvested cash. Brokerages can automatically transfer unused cash into these liquid funds.
But Cantella had an agreement with its unaffiliated clearing broker to share a portion of the income generated by these money market funds, according to the SEC. The rate of income Cantella recouped as a result of the deal could depend on the money market fund he selected for the sweep accounts, and the amount he received was based on the amount of assets in the client included. The SEC argued that this setup created a conflict of interest when the dual filer recommended these options.
âIn particular, money market funds available on the Clearing Broker platform where Cantella received the most revenue sharing generally charged higher fees and had occasionally reported lower investment returns to clients,â the report says. ‘order. âConversely, money market funds available on the Clearing Broker platform that did not pay any revenue sharing or lower revenue sharing generally charged lower fees and sometimes had higher investment returns for investors. clients. ”
According to the SEC, Cantella primarily recommended money market funds that would get the most out of revenue sharing, even though the clearing broker had options that would result in higher returns for clients but lower income for Cantella. The SEC claimed Cantella did not disclose the financial benefits of its revenue sharing agreement to customers. The company did not respond to a request for comment.
From April 2019, the company began converting its clients to money market funds that did not share income and offered clients better returns. Although the company mainly completed this in August 2019, the company continued to receive revenue sharing payments until June of last year. In the order, the commission ordered the company to cease and desist from the alleged violations, imposed censorship, and ordered Cantella & Co. to pay restitution of $ 536,953, pre-judgment interest from $ 64,677 and a civil penalty of $ 100,000.