SEC Orders Credit Suisse Securities and Former Financial Advisor Sanford Michael Katz to Pay $7.93 Million in Fines to Clients
Posted on Monday, April 17th, 2017 at 12:46 pm
Erez Law is currently investigating former Credit Suisse Securities financial advisor Sanford Michael Katz (a.k.a. Sandy) (CRD# 1558898) regarding breach of fiduciary duty in connection with the purchase and recommendation of mutual fund shares for his clients. Katz has been registered with Wells Fargo in San Francisco, California since 2015. Previously, he was registered with Credit Suisse Securities in San Francisco, California from 2008 to 2015.
In April 2017, the Securities and Exchange Commission (SEC) reached a $7.93 million settlement with Credit Suisse Securities and Katz. It is alleged that Katz “purchased or held Class A mutual fund shares for advisory clients who were eligible to purchase or hold less expensive institutional share classes of the same mutual funds,” between January 1, 2009 and January 21, 2014. During this period, Katz put advisory clients in discretionary accounts in Class A shares when those clients were eligible for less expensive institutional shares, which resulted in Credit Suisse collecting $2.5 million in fees, of which $1.1 million was paid to Katz. Credit Suisse collected a total of approximately $3.2 million in 12b-1 fees during this period, including the $2.5 million from Katz’s clients.
According to the SEC release, there is a “significant difference between Class A shares and institutional share classes is the existence of marketing and distribution fees imposed on Class A shareholders pursuant to Section 12(b) of the Investment Company Act and Rule 12b-1 thereunder (12b-1 fees), typically 25 basis points per year for Class A shares. The 12b-1 fees are paid out of the assets of the fund as a portion of its expense ratio. In this case, the 12b-1 fees were passed through to the firm, which in turn paid a portion of that amount to its investment adviser representatives, also referred to as Relationship Managers (RMs), including Katz. Thus, 12b-1 fees decreased the value of advisory clients’ investments in mutual funds and increased the compensation paid to the firm and its RMs.”
“This practice was inconsistent with Katz’s fiduciary duty, his representations to clients, and his obligation to obtain best execution for his advisory clients. Katz willfully violated Section 206(2) as a result of the negligent conduct described above,” according to the SEC. The SEC sanctioned Katz and Credit Suisse to pay $3.22 million in disgorgement, $577.678 in interest, and $4.150 Million in penalties to its clients affected by these transactions. Of that amount, Katz is personally responsible to pay $850,000 in civil and administrative penalty fines, $1,124,858.89 in disgorgement and $197,587.38 for monetary penalties other than fines.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Credit Suisse Securities and Wells Fargo may be liable for investment or other losses suffered by Sanford Michael Katz’s customers.
Erez Law represents investors in the United States for claims against former Credit Suisse Securities financial advisor Sanford Michael Katz regarding breach of fiduciary duty in connection with the purchase and recommendation of mutual fund shares for advisory clients. If you were a client of former Credit Suisse Securities financial advisor Sanford Michael Katz or another firm, and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.