On February 28, 2018, the Securities Exchange Commission (“SEC”) announced the settlement of charges against Ameriprise for recommending high-fee mutual fund shares to their customers when less expensive share classes were available from the same mutual fund. As part of the settlement, Ameripise will pay a fine of $230,000 “without admitting or denying” the SEC’s findings of malfeasance. According to the SEC’s investigation, more than 1,700 customer accounts were charged $1,778,592 in unnecessary mutual fund fees and charges. Unfortunately, investors will not be entitled to any restitution under the terms of the SEC’s settlement. Affected investors, however, are free to pursue their own remedies—usually through the filing of a securities arbitration matter before the Financial Industry Regulatory Authority (“FINRA”).
Ameriprise’s Conduct Amounted to Securities Fraud
As an investment advisor, Ameriprise is subject to both the Investment Advisers Act of 1940 and the Securities Act of 1933. According to the SEC’s findings, Ameriprise willfully violated Sections 17(a)(2) & 17(a)(3) of the Securities Act by engaging in a course of business that operates as a fraud or deceit upon its customers and by omitting or failing to disclose material facts to its customers. Specifically, Ameriprise failed to provide its customers with material information regarding the compensation they received for selling more expensive mutual fund shares such as Class A shares that carried up-front sales charges or Class B and C shares with contingent deferred sales charges (“CDSCs”) and higher internal fees and expenses. More importantly, Ameriprise failed to disclose that the firm would earn increased revenue when customers these more expensive mutual fund shares. As noted by the SEC, “information about this cost structure would accordingly be important to a reasonable investor.”
Investor Rights Unaffected by Ameriprise’s Settlement with the SEC
Under the terms of Ameriprise’s settlement with the SEC, Ameriprise may not use the penalty to offset any claims brought against them by affected customers. Because Ameriprise typically requires all customers to sign an arbitration agreement, FINRA arbitration may be the only avenue of relief for them.