SEC Enforcement Division Launches Share Class Selection Disclosure Initiative

The SEC Division of Enforcement announced an initiative aimed at incentivizing firms to self-report violations of the federal securities laws relating to certain mutual fund share class selection issues. Such initiative would decrease the civil penalties ordinarily associated with violations and would instead require violators to disgorge its illegal profits and pay those amounts to harmed clients, without additional penalty.

Through the "Share Class Select Disclosure Initiative" ("SCSDI"), the Division will not recommend financial penalties if an investment adviser self-reports a failure to disclose conflicts of interest associated with fees received by the adviser or associated entities pursuant to Investment Company Act Rule 12b-1 when a lower-cost share class of the same mutual fund is available. Advisers are required to inform investors of any conflicts of interest in connection with the receipt of such fees.