The SEC brought settled charges against American Portfolio Advisors, Inc. (APA), a former registered investment adviser, for failing to adequately disclose conflicts of interest and overbilling its clients. While the firm's Form ADV Part 2 contained general disclosures about conflicts of interest regarding APA’s affiliated broker-dealer and related brokerage fees, the firm allegedly failed to fully and fairly disclose the nature and extent of conflicts of interest associated with certain compensation paid to the affiliated broker-dealer by an unaffiliated clearing broker in connection with trade execution and account services, resulting in additional costs to clients. Specifically, the SEC's order found that APA did not disclose that the affiliated broker-dealer charged fee markups on various types of transactions and account service fees, and instead misleadingly indicated that the unaffiliated clearing broker determined the amounts of the fees billed to APA clients. According to the order, APA also erroneously billed and collected advisory fees on alternative investment positions, although no fees were supposed to be assessed on those positions, and it failed to refund a pro rata portion of prepaid quarterly advisory fees when clients terminated their accounts, as provided in APA’s client agreements. The firm took remedial action to reimburse more than $5 million in inflated fees with interest and agreed to a $1.75 million penalty for these violations and the following compliance documentation violations.

The SEC further charged Colin Michael Moors, the firm's Chief Compliance Officer, and Gary Bruce Gordon, President, for creating backdated documents memorializing its annual compliance review for three calendar years and providing them to SEC examination staff. The SEC order noted that although documentation of an adviser’s annual compliance review is not required under Rule 206(4)-7 under the Advisers Act, APA’s policies and procedures required that a written annual compliance report be created and that the President and the CCO meet to discuss the report. After the firm received an SEC exam announcement and document request list requesting annual compliance reviews, rather than responding that APA did not have any records responsive to the SEC exam staff's request, the President and CCO created three documents styled as “Annual Compliance Calendars” and purported to memorialize contemporaneous annual compliance reviews for the years. The CCO and President agreed to penalties of $10,000 and $20,000, respectively.