The SEC’s Robare Decision: Potential Financial Conflicts of Interest are Per Se Material and Must Be Disclosed
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- On November 7, 2016, the U.S. Securities and Exchange Commission overturned an Administrative Law Judge’s initial decision and issued an opinion, In re The Robare Group, Ltd., Advisers Act Rel. No. 4566 (Nov. 7, 2016), finding that investment adviser The Robare Group, Ltd. and its principals negligently failed to fully and fairly disclose potential conflicts of interest arising from an arrangement with a mutual fund manager.
- Starting with the basic premise that potential conflicts are always material and require disclosure, the Commission stated that The Robare Group’s disclosure that it “may” receive compensation from the Fund Manager was inadequate. This was because the disclosure failed to alert clients to either: (i) that it had such an arrangement with, and received fees from, the Fund manager; or (ii) that the arrangement presented at least a potential conflict of interest.
- The Commission rejected the Respondents’ claim that they had exercised reasonable care in relying on compliance consultants, finding that there is no case recognizing such a defense and that the Robare Group did not establish that it specifically sought or received consultants’ advice concerning how to disclose the arrangement with the Fund Manager.