Southern California-based Crown Capital Securities will pay nearly $1.6 million after an SEC investigation determined the firm improperly recommended that clients purchase or hold inappropriate mutual fund share classes that charged 12b-1 fees when alternative options of the same funds existed that were lower cost and did not charge such fees. FINRA had previously cited Crown Capital Securities for a similar mutual fund share class violation.
According to the SEC's cease-and-desist order, Crown Capital Securities, LP of Orange, CA, a dually-registered broker-dealer and Registered Investment Adviser, failed to disclose multiple conflicts of interests related to receiving fees for certain mutual fund share classes it recommended, and also failed to adopt and implement written compliance policies that would ensure compliance with the Advisers Act regarding, amongst other things, its mutual fund share class selection practices.
The findings state that as a result of these failures, Crown Capital received fees from clients it otherwise would not have had the clients invested in the other lower-cost share classes that did not charge such fees.
The SEC's order follows FINRA's 2019 censure and fine issued to Crown Capital Securities (Orange) for failing to supervise mutual fund switches related to what investigators described as a "pattern" of unsuitable short-term Class A share mutual fund switching and recommendations, allegedly perpetrated by brokers Eric William Kuchel and Don Wade Traywick.
At the time, FINRA wrote that Crown Capital's failure to detect the mutual fund class share problem resulted in customers incurring losses of $400,000, as well as unnecessary fees and charges such as front-end sales loads.
FINRA barred Eric Kuchel who worked at Crown Capital's Brea, CA branch for failing to cooperate with its investigation while fining and suspending Donald Traywick of the firm's San Clemente branch. Traywick is currently registered with TCFG Wealth Management.
If you invested with Crown Capital Securities or with any stockbroker, investment adviser, or broker-dealer who unsuitably recommended you purchase a higher-cost or higher-fee mutual fund share or other product when a lower-cost or discounted alternative existed, and in doing so, you incurred additional and unnecessary expenses in the form of commissions, fees, or other damages, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.