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Rating:Trading Away Lands an ETF Strategist In Hot Water With the SEC Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, July 15, 2016

Trading Away Lands an ETF Strategist In Hot Water With the SEC

Reported by Neil Anderson, Managing Editor

The SEC is taking to task the second-largest ETF strategist in the business.

Yesterday the regulatory agency unveiled an enforcement action against Richmond, Virginia-based RiverFront Investment Group. The SEC accuses RiverFront of inadequate disclosures of "trading away" practices in wrap programs where RiverFront is a subadvisor. RiverFront, which had nearly $5.4 billion in AUM at the end of 2015, settled the case without admitting to or denying the charges. The settlement includes a $300,000 fine.

MFWire could not immediately reach RiverFront chairman Michael Jones or defense counsel Stephen Topetzes of K&L Gates for comment on the settlement.

The case focuses on RiverFront's work in broker-dealer wrap programs. Wrap program fees typically cover trading costs within the program, when those trades are made with the B-D sponsoring the wrap. Yet the SEC claims that in Q1 2009 RiverFront started shifting the bulk of its wrap account trading to B-Ds outside the programs "to obtain best execution." By April 2010, the SEC claims, RiverFront was "trading away" all portfolio trades in equities, ETFs, and fixed income securities, leaving only "maintenance trades" with the sponsoring B-Ds. All that trading away, the SEC says, translated into millions of dollars of trading fees for investors, yet RiverFront's disclosures at the time said that the firm would "generally" use the sponsoring B-Ds for trades.

RiverFront is also working on a new series of ETFs, RiverShares, some of which will be subadvised by ALPS and others by First Trust. (RiverFront will subadvise the ETFs.)

MFWire could not immediately reach Mike Akins, senior vice president and head of ETFs at ALPS, or Jim Bowen, CEO of First Trust, for comment on the RiverFront settlement. 

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