Money makes the world go ’round and apparently also makes Credit Suisse employees work faster or slower, as the case may be. The Wall Street Journal reported on Friday February 21, 2014 that Credit Suisse Group AG (Credit Suisse) agreed to pay $196 million to settle charges brought by the Securities and Exchange Commission that it provided brokerage and investment services to U.S. clients without registering with the SEC. According to the SEC’s Order, Credit Suisse willfully violated the Exchange Act and Investment Advisors Act by failing to register, in violation of Section 15 of the Securities Exchange Act of 1934 and Section 203 of the Investment Advisors Act of 1940. The SEC announced in a news release on Friday that Credit Suisse admitted to the violations.
In the Order, the SEC noted that Credit Suisse apparently knew the services its relationship managers were providing across borders to U.S. clients was improper, and set up a properly registered entity to transfer the U.S. business. However, the Order went on to detail that the transfers took far more time than was initially planned, partly because Credit Suisse did not properly incentivize its employees to timely transfer the accounts. This, in addition to other wrongful conduct led the Commission to conclude that Credit Suisse failed to implement its own policies and procedures to efficiently move the accounts. The Order and the WSJ article both noted that Credit Suisse has subsidiaries that are properly registered to provide both brokerage business and investment advisory business to U.S. clients. Until the bank completed its exit from its cross-border business, it continued to charge brokerage and advisory fees to the U.S. clients it served.
Registration by brokers, dealers and investment advisors with the SEC or state regulators is a bedrock principle of the securities laws and is designed to protect investors. Section 203 of the Investment Advisors Act regulates and requires registration of brokers, dealers and investment advisors, with limited exception. The SEC regularly fines individuals and entities such as Credit Suisse for failing to follow these laws.
U.S. clients who held these accounts may not have known that they were transacting paying fees to an unregistered entity to provide advisory services. These clients may possess causes of action for those transactions and fees paid. While there may not be a private right of action under the Investment Advisors Act of 1940, it may still serve to establish duties and obligations of investment advisors. Investors should always look to their specific investment advisory agreements to determine whether breaches have occurred.
The attorneys of Malecki Law have experience representing investors in actions against firms in FINRA arbitration and in court. Investors of Credit Suisse Group or other unregistered firms should contact Malecki Law to determine whether they were inappropriately charged fees, and to determine if any other causes of action may exist.