Omaha’s Manarin Investment Counsel will pay about $1 million to settle a Securities and Exchange Commission civil investigation into mutual-fund asset purchases that led to higher expenses for investors and higher fees for the broker that arranged the transactions.
The SEC said in a statement that Manarin Investment bought shares of other mutual funds as investments for mutual funds it manages on behalf of investors. From 2000 through 2010, the SEC said, Manarin Investment bought more expensive Class A mutual fund shares, the kind available to individual investors.
But the SEC said the company was eligible as a professional broker-dealer to buy cheaper institutional shares that would not have come with ongoing fees that were collected by the Manarin Investments broker-dealer unit. The fees reduced mutual fund returns.
“Investment advisers must fulfill their fiduciary duty of best execution when selecting mutual fund shares for their clients,” said Marshall Sprung, co-chief of the SEC Enforcement Division’s Asset Management Unit. “Manarin and his firm breached that duty by choosing more expensive shares that would pay higher fees to an affiliate when their clients were eligible to own lower-cost shares in the very same mutual funds.”
Manarin Investment owner Roland Manarin declined to comment on the investigation, saying only that he is glad the episode is resolved and that the company can concentrate on serving investors.
The company, without agreeing to or dissenting with the SEC investigation, agreed to pay investors in the relevant mutual funds $685,006 and interest of $267,741. Manarin also agreed to pay a $100,000 penalty.
According to the SEC, Manarin Investment Counsel provides investment advice to mutual funds called Lifetime Achievement Fund, Pyramid I Limited Partnership and Pyramid II Limited Partnership. As “funds-of-funds” they invest in the shares of other mutual funds.
The SEC said Manarin’s brokerage unit eventually refunded fees paid by the Lifetime Achievement Fund, but not those from the Pyramid funds. From June 2000 to October 2010, the SEC said, the Manarin Securities Corp. broker-dealer unit received about $685,000 in fees related to Pyramid fund share purchases not made at the lower institutional prices the federal securities regulator said were available.
Richard Roth, a New York-based securities lawyer at the Roth Law Firm, said all investment firms require robust compliance and oversight efforts to avoid entanglements with SEC regulations. Smaller ones, he said, sometimes find it less costly to settle with the SEC than to fight it out in court.
“In this case, it is a small firm, and smaller firms are generally less willing to put up a powerful defense,” Roth said.
This year marks Manarin Investment’s 30th year in business and a move to a new 12,000-square-foot office in the Elkhorn area. Manarin Investment has about $550 million of assets under management.