Adviser Charged with Failing to Disclose Higher Fees as a Result of Moving Clients into a New Mutual

June 1, 2017

The SEC brought an enforcement action against Ronald J. Fernandes, who was the founder, Chief Executive Officer and co-Chief Investment Officer of Momentum Investment Partners LLC, which did business as Avatar Investment Management. The SEC alleged that Avatar and Fernandes failed to disclose material conflicts of interest in connection with investments Avatar made in new mutual funds that Avatar created and managed. Specifically, the SEC stated that Avatar and Fernandes failed to disclose that moving private clients’ assets into Avatar’s newly-created mutual funds would increase the clients’ total advisory fees paid to Avatar without changing the clients’ investment strategy. As a result, the SEC stated that between May 2013 and March 2014, Avatar’s private clients paid almost $111,000 in total additional fees, including approximately $61,000 in additional fees ultimately paid to Avatar, for no additional services.

Click here to access the enforcement action.