Investment Advisory Firm Charged With Conflict Of Interest Disclosure Failure

Anna Hallissey

3 September 2014

Charges have been brought against a Houston, TX-based investment advisory firm and its co-owners who failed to disclose conflict of interest to its clients, the Securities and Exchange Commission announced yesterday.

According to the SEC, the claims that owners Mark Robare and Jack Jones had an incentive to recommend these funds over other potential investments to clients with the goal of generating additional revenue, neglecting the fiduciary standard in place.

Robare Group and Robare have been charged with wilfully violating sections 206(1) and 206(2) of the Investment Advisors Act of 1940, and Jones has been charged with aiding and abetting these violations. In addition to this, it has been alleged that Robare Group and its owners also wilfully violated section 207 of the Act.

In December 2011, the Robare Group disclosed the compensation agreement on its Form ADV, yet it stated that the firm “did not receive and economic benefit from a non-client for providing investment advice”, the SEC said.

This appeared in following Form ADV disclosures, which stated that Robare Group “may” receive compensation from the broker, when the case was that compensation was definitely received.

The SEC also claims the Robare Group and its broker entered into a similar agreement in late 2012, and in June 2013 it finally disclosed conflict of interest with regards to this arrangement. However, in this the Robare Group did not disclose the incentive to recommend buying and holding certain mutual funds through the broker’s platform. According to the SEC, Robare reviewed and approved the Forms ADV, and Jones reviewed and signed all but one of the filings.

“By failing to fully disclose its agreements with the brokerage firm, Robare Group deprived its clients of important information they were entitled to receive,” said Marshall S. Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit.

The SEC’s investigation was conducted by Catherine Floyd and Barbara Gunn of the Fort Worth regional office along with John Farinacci.