Thursday, May 1, 2008
The SEC filed a settled enforcement action against Banc of America Investment Services, Inc. (BAISI) for failing to disclose to clients that in selecting investments for discretionary mutual fund wrap fee accounts, it favored two mutual funds affiliated with BAISI. The SEC also charged Columbia Management Advisors, LLC (Columbia), as successor to Banc of America Capital Management, LLC (BACAP), with aiding and abetting, and causing certain of BAISI's violations. As part of the settlement, BAISI and Columbia agreed to pay a total of nearly $10 million in disgorgement and penalties. The Commission ordered BAISI to distribute the settlement amount to affected clients.
According to the SEC, from July 2002 through December 2004, BAISI made material misrepresentations and omissions to clients who had given BAISI discretion to select mutual funds for them. The clients participated in an asset-based or "wrap" fee program in which they paid BAISI a fee based upon the amount of their assets in exchange for BAISI providing advisory and other account services. BAISI purchased at least two proprietary "Nations Funds" for clients with discretionary wrap fee accounts using a methodology that was contrary to BAISI's disclosures to those clients. The Order also finds that BAISI omitted to disclose the scope of its and BACAP's conflict of interests, and their bias in the recommendation and selection process. BACAP earned additional fees as a result of these violations because it was paid management and other fees based on the total assets of Nations Funds.