March 12, 2019
BB&T Subsidiary Must Pay $5.7 Million After Policy Violation
WHAT HAPPENED?
On March 5, 2019, the U.S. Securities and Exchange Commission ordered BB&T Securities to pay $5.7 million following Valley Forge Asset Management’s intentional overcharging of clients. The undue charges occurred from 2013 to 2016 and involved requiring clients to pay significantly more for the same services other clients received at a lower price.
Valley Forge imposed the duplicitous rates by offering clients several lines of brokerage services, one of which, “Affiliated Brokerage,” led customers to believe they could negotiate normal commission rates at a discount of at least 70%. Under the service line, Valley Forge partnered and had a clearing agreement with an outside broker and did not disclose to clients which services were actually provided to them.
In another service, “Directed Brokerage,” clients worked and negotiated commission rates with a third-party broker-dealer directly. Valley Forge had a referral program in place with the broker-dealer most Directed Brokerage clients utilized.
Valley Forge claimed in its Form ADV Part 2 that services similar to Affiliated Brokerage “may be offered at higher or lower prices elsewhere.” In reality, the price, advertised as a significant discount, was 4.5 times higher than the price for Directed Brokerage, which provided clients with the same service as Affiliated Brokerage. As a result, Valley Forge gained $4.7 million in additional compensation, in breach of regulatory requirements its fiduciary obligation.
The wrongdoing affected up to 1,200 clients that received Affiliated Brokerage services from 2013 to 2016.
WHAT DOES THIS MEAN FOR ME?
By making deceptive claims on its Forms ADV and intentionally withholding information from clients regarding the price and range of services, Valley Forge violated sections 206 and 207 of the Advisers Act. BB&T Securities, the firm’s parent company, is now required to pay back the money unfairly charged to clients, plus interest and a civil penalty totaling over $5.7 million. Valley Forge Asset Management (now Sterling Advisors) is a division of BB&T Securities.
Please contact Fairview with questions about the requirements of the Advisers Act.
Sources: https://www.sec.gov/litigation/admin/2019/34-85249.pdf
