Cambridge Expects $500,000 Fine for Promised Fee Waiver Failures

The firm offered certain fee waivers which were not honored, per a recent regulatory filing.

Cambridge Investment Research Inc. anticipates paying $500,000 in restitution for failing to process fee waivers, according to information it disclosed in a regulatory filing.

According to the firm’s Form X-17A-5 filing from December 31, 2023, accepted by the Securities and Exchange Commission on February 27, the examinations staff at the Financial Industry Regulatory Authority is examining Cambridge’s policies and procedures concerning rights of re-installment. A right of re-installment is a transaction fee waiver for a customer who redeems an asset and then reinvests the proceeds within a set time frame.

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According to the filing, Cambridge elected to offer the waiver, but these waivers “were not honored.”

“FINRA continues to review this matter, and the Company expects that FINRA’s review period will extend further than contemplated by the Company, resulting in an additional restitution payment in the amount of approximately $500,000 in 2024,” the filing stated.

FINRA has not yet announced that it has imposed such a payment. The disclosure did not say if Cambridge expects additional civil penalties to be added to the $500,000 restitution or what other actions FINRA might require Cambridge to take.

Cambridge declined to comment.

In February, the firm was fined $10 million by the SEC for “widespread recordkeeping failures.” It was among five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers charged with failures to maintain and preserve electronic communications. Cambridge and the other firms admitted to the facts in their respective SEC orders, agreed to pay combined civil penalties of more than $81 million, and have begun implementing improvements to their compliance policies and procedures to address the violations.

BlackRock’s Non-ESG Funds Are Still ESG, Mississippi Order Says

Mississippi alleges that BlackRock misled investors and should be fined millions.

Mississippi issued a cease-and-desist order against BlackRock Inc. and its subsidiaries on Tuesday alleging widespread fraud in the marketing of the firm’s investment funds that do not carry an ESG label. The order does not contain a specific monetary penalty but indicates it could result in a “multimillion-dollar penalty” at a later point for violations of the Mississippi Securities Act.

The 33-page order, signed by Mississippi Secretary of State Michael Watson, alleges that BlackRock fraudulently marketed some of its mutual funds and exchange-traded funds as “non-ESG,” even though the investment manager still carries on an engagement and investment strategy informed by ESG considerations. Further, BlackRock markets its ESG products as outperforming non-ESG comparators without evidence, the order contends.

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The order tells BlackRock to ‘immediately cease and desist from offering securities in or from Mississippi through an offer containing a statement that is materially misleading or otherwise likely to deceive the public.”

It is not clear how many securities the firm has sold in the state.

In addition, the order offers BlackRock the opportunity to request an administrative hearing on the allegations withing 30 days from receipt of the order.

BlackRock did not respond to a request for comment.

Each violation carries a maximum fine of $25,000, there are “thousands of potential violations,” according to the order, and the order pledges that the secretary’s office “will continue to investigate before issuing a final order to impose an administrative penalty.”

The first claim of fraud is essentially that all of BlackRock’s fund offerings are ESG funds, including those that explicitly say they are not. The order notes that BlackRock is a member of the Net Zero Asset Managers Initiative and has pledged to pursue a proxy voting policy oriented toward lowering carbon emissions. The order states, “BlackRock has committed to engagement that is based on a sustainable, impact or ESG investment strategy—directly contrary to what it represents to investors.”

The state’s order lists index funds offered by BlackRock that are marketed as being non-ESG because they simply track an index. The order argues this is fraud because BlackRock has committed to managing all its assets towards net zero, contradicting the marketing materials for its index funds; and because BlackRock still votes its shares on those indexes in a manner informed by ESG considerations.

“In particular, BlackRock has repeatedly exercised its voting authority—over the opposition of company management—to support proposals pressuring companies to align their political lobbying with the public-policy goals of the Paris Agreement,” it states. “BlackRock has exercised proxy-voting authority to get companies to adopt specific emissions-reduction targets.”

The second allegation notes that BlackRock fraudulently asserts that ESG considerations are “financially beneficial to its ESG funds,” while saying elsewhere that ESG considerations “do not provide an indication of current of future fund performance.”

In places where BlackRock’s descriptions of its ESG strategy do not contradict each other, the claim that ESG funds outperform others is based on weak empirical evidence, according to the order.

The order was issued as the Mississippi legislature is considering a bill that would move control of the state’s pension system board from members mostly elected by plan members to one mostly appointed by state government officials.

The Public Employees’ Retirement System of Mississippi opposes the measure.

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