Adviser Fails to Disclose Deteriorating Financial Condition to Clients

March 29, 2017

The SEC brought an enforcement action against Stephen D. Alison and Alison, LLC (ALLC), a registered investment adviser and a company wholly owned and controlled by Alison, for failing to disclose in ALLC’s Form ADV filings that ALLC’s distressed financial condition was reasonably likely to impair its ability to meet contractual commitments to clients.


In addition, the SEC found violations in connection with classes of shares recommended for clients. The SEC stated that for over three years ALLC generated about 8.3% to 11.2% percent of its revenue from 12b-1 fee payments that were charged to clients by third parties. These fees were ultimately paid to Alison out of client assets. The SEC stated that Alison failed to disclose to clients that cheaper share classes that did not pay the 12b-1 fees, but had identical holdings, were available. Alison and ALLC had a conflict of interest with their clients as they were incentivized to choose fund share classes that carried 12b-1 fees over those that did not. Alison and ALLC did not disclose this conflict of interest and misrepresented in ALLC’s Forms ADV and updating amendments that Alison did not receive 12b-1 fee payments. As a result, Alison and ALLC violated Sections 206(2), 207 and 204(a) of the Advisers Act.

Click https://www.sec.gov/litigation/admin/2017/34-80335.pdf to access the enforcement action.