"Good faith matters when you document it."
That's a key lesson that Alan Wolper
, attorney for an RIA that just beat an SEC attack over revenue sharing, draws from his clients' victory.
Wolper (of Chicago-based Ulmer & Berne
), defended Mark L. Robare
and Jack L. Jones Jr.
of the Houston-based Robare Group
(dba Robare & Jones Asset Managers) in an SEC administrative proceeding. Earlier this month Administrative Law Judge James Grimes tossed
out the SEC's case against Robare and Jones, writing that "it is difficult to imagine them trying to defraud anyone, let alone their investment clients."
Wolper also blogged
in depth about his take on the case.
The Robare case might not be over yet, as SEC staffers could appeal the decision to the Commission itself, and that in turn could lead to an appeal up through a U.S. Court of Appeals. Yet even this much victory for Robare is notable; Wolper points to a Wall Street Journal
article last month, in which the paper reported that (from 10/2010-3/2015), the SEC won 90 percent of cases brought in such proceedings, versus winning 69 percent of their cases in federal court.
In the face of such odds, Wolper praises Robare and Jones for declining an SEC settlement offer and choosing instead to fight the SEC's claims.
"If you've got a bird in hand ... with any regulator, it can be extremely difficult to say no to," Wolper tells MFWire
, noting that this is the first administrative law proceeding that he's actually had to litigate. "I give my clients all the credit in the world for having the fortitude to do that."
The SEC's case, Wolper says, focused mainly on 12b-1 fees. Robare used Fidelity
's NTF (no transaction fee) platform, and for some funds ("eligible, non-Fidelity" ones on the NTF platform) Robare would receive some revenue sharing from Fidelity, first through Triad (whom Robare used as its B-D) and later directly from Fidelity. The regulatory agency cried foul over that revenue sharing and over how Robare disclosed it to clients.
"The SEC was calling it an illegal arrangement," Wolper says.
Robare and Jones' defense, Wolper explains, rested on them proving to the judge that that "eligible" phrase wasn't defined, so the Robare folks never knew, nor cared, which funds on the NTF platform would generate some revenue sharing for them and which wouldn't.
Wolper says that, in addition to the judge not buying the SEC's portrayal of the Robare folks as fraudsters trying to scam their clients, the judge also was "not really concerned" with the SEC's big focus on 12b-1 fees.
"I don't think the judge really cared very much about that," Wolper says.
Wolper also notes that a key factor in the case was that Robare and Jones got outside help, every time they made disclosures, to make sure they were doing it right.
"They did use professionals. They did seek out assistance," Wolper says. "If you can demonstrate that you try and you take your job seriously, that's going to go a long way."
"The judge sounded sort of incredulous about the charges the SEC brought," Wolper adds.
One upshot of the judge's ruling, Wolper says, is that it reaffirms a principle that fundsters can find even in the SEC's own literature; 12b-1s can be more than one thing, payments for sales or for servicing.
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