On October 29, 2012, the Securities and Exchange Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (the Order) against Tilden Loucks & Woodnorth, LLC, an investment adviser registered with the Commission, LaSalle St. Securities, LLC (LaSalle), a broker-dealer registered with the Commission.
The SEC’s Order apparently finds that, from October 1, 2007 through March 22, 2012, Tilden Loucks & Woodnorth obtained undisclosed compensation by charging increased commissions on trades for its clients through its affiliated broker-dealer, LaSalle. The SEC’s Order further finds that Tilden Loucks & Woodnorth failed to seek best execution for its clients’ securities transactions and made misleading statements in its Forms ADV concerning the steps it would take to evaluate execution of client trades and ensure that commission rates were reasonable.
According to the SEC’s Order, from October 1, 2007 through March 22, 2012, Tilden Loucks & Woodnorth’s clients paid commissions at LaSalle that averaged more than $143 per trade (even though the majority of trades apparently consisted of buys and sells of large cap equities). Tilden Loucks & Woodnorth allegedly did not tell its clients the true nature of the commissions it charged by stating in its Forms ADV that clients obtained a significant “discount” to LaSalle’s scheduled retail brokerage charges.
However, it appears that LaSalle had no scheduled retail brokerage charges or commission schedules. Instead, unbeknownst to Tilden Loucks & Woodnorth’s clients, the firm set the commission charges at rates exceeding LaSalle’s charge to Tilden Loucks & Woodnorth to execute a trade and the “discount” was in reality only a price lower than those reflected on a commission schedule supplied by Tilden Loucks & Woodnorth that dated to at least 1988. According to the SEC’s Order, Tilden Loucks & Woodnorth’s undisclosed compensation practices netted it more than $186,000 in higher commissions paid by advisory clients.
The Order finds that Tilden Loucks & Woodnorth willfully violated Sections 206(2) and 207 of the Investment Advisers Act of 1940 (Advisers Act. Without admitting or denying the Commission’s findings, Tilden Loucks & Woodnorth and LaSalle agree to cease and desist from committing or causing any violations and any future violations of these provisions. Further, Tilden Loucks & Woodnorth and LaSalle agree to jointly and severally disgorge $170,319.94 in ill-gotten gains and to pay prejudgment interest of $16,531.06. Additionally, Tilden Loucks & Woodnorth agrees to be censured, pay $100,000 in penalties, and undertake within thirty days to: (1) revise its Form ADV to disclose its compensation structure, how commissions charged to its clients by LaSalle are determined and the amounts LaSalle charges Tilden Loucks & Woodnorth to execute trades; (2) provide the revised Form ADV to its clients; and (3) provide a copy of the Order to its clients. Further, LaSalle agrees to pay $100,000 in penalties.
The foregoing information, which is publicly available on the SEC’s website, has been provided by The White Law Group. The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.