The Securities and Exchange Commission today announced that BB&T Securities has agreed to return more than $5 million to retail investors and pay a $500,000 penalty to settle charges that a firm it acquired misled its advisory clients into believing they were receiving full service brokerage services in-house at a discount while significantly less expensive options were available externally.
According to the SEC’s order, Valley Forge Asset Management used misleading statements and inadequate disclosures about its brokerage services and prices to convince customers to choose the in-house broker. Despite promises of a high level of service at a low cost, the SEC’s order finds that Valley Forge did not provide any additional services to advisory clients using its in-house brokerage than it did to advisory clients who chose other brokerages with significantly lower commission rates. According to the order, Valley Forge charged commissions averaging roughly 4.5 times more than what clients would have paid using other brokerage options, and the firm obscured the price difference by claiming that it was giving clients a 70 percent discount off of its supposed retail commission rate.
“Valley Forge put its own interests ahead of its advisory clients, causing them to spend more money unnecessarily by portraying inaccurate costs and benefits of using its in-house brokerage,” said Kelly L. Gibson, Associate Director of Enforcement in the SEC’s Philadelphia Regional Office. “Dual registrants and advisers with affiliated broker-dealers must accurately disclose all conflicts of interest arising from their brokerage arrangements. The SEC’s examination and enforcement programs will continue to identify these types of violations and return money to harmed retail investors as quickly as possible.”
The SEC’s order finds that BB&T Securities as the successor in interest to Valley Forge violated Sections 206(2) and 207 of the Investment Advisers Act of 1940. Without admitting or denying the findings, BB&T Securities consented to a cease-and-desist order, a censure, and agreed to pay disgorgement of $4,712,366 and prejudgment interest of $497,387, which it will distribute to affected current and former clients through a Fair Fund, as well as a $500,000 penalty. BB&T Securities has ended Valley Forge’s existing directed brokerage program by amending its cost structure and its disclosures.
The SEC’s investigation was conducted by Norman P. Ostrove and Scott A. Thompson of the Philadelphia Regional Office with support from Eric Elefante, Scott Fisher, Michelle Eichner, Andy Green, Andy Groum, Joseph Francks, and Brian Carroll from the Office of Compliance Inspections and Examinations. The case was supervised by Ms. Gibson.