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Use of "May" in Form ADV Deemed Negligent by D.C. Circuit Court

Use of “May” in Form ADV Deemed Negligent by D.C. Circuit Court


In April, the D.C. Circuit Court of Appeals in Robare Group, Ltd. v. United States Securities and Exchange Commission ruled against Robare, a registered investment adviser, for failing to properly disclose a fee arrangement with a broker-dealer. The issue arose as a result of a preferred relationship Robare had with Fidelity Investments. Ultimately, the court upheld the Commission’s finding that the adviser failed to adequately disclose it received payments from Fidelity in exchange for the selection of certain products for client accounts.

For three years, the firm did not fully disclose this information in its Form ADV filings; instead, only a passing reference to the relationship was included, which stated: “[Robare] may receive selling compensation from such broker-dealer as a result of […] certain securities transactions.” The disclosure was so vague that the Commission deemed the firm’s actions to be negligent. Robare was issued a cease-and-desist order and each principal of the firm was ordered to pay a $50,000 civil penalty.

Originally, the firm was found to have willfully violated the anti-fraud provisions of the Advisers Act which require advisers to fully disclose conflicts to clients and the Commission. On appeal, it was the decided that there was no intent to deceive or mislead, so the willfulness finding was thrown out by the D.C. Circuit. However, the court upheld the Commission’s finding that Robare was negligent in its failure to disclose the terms of its relationship with Fidelity.


The trouble with the firm’s Form ADV filings resulted from the use of the phrase “may receive selling compensation” as opposed to “will receive selling compensation.” The use of the word “may” was deceptive in this case, because Robare was aware that client relationships would absolutely involve receiving selling compensation from Fidelity.

Because of the renewed attention this case has brought to the semantics of conflicts and fee disclosures, Fairview is reviewing of clients’ Form ADV to ensure those with preferred relationships, fee arrangements, and other potential conflicts have proper disclosures in place. Fairview is committed to helping our adviser clients review and update disclosures in response to evolving legal guidance. We are always available to answer questions regarding Form ADV, disclosure requirements, and related topics.