Sanford Michael Katz of San Francisco California a stockbroker formerly registered with Credit Suisse Securities (USA) LLC has been censured and fined $850,000.00 by Securities and Exchange Commission (SEC) according to an Order instituting Administrative and Cease and Desist Proceedings Making Findings and Imposing Remedial Sanctions in which Katz was found to have breached his fiduciary duties to customers when making recommendations and purchases in their investment accounts. In the Matter of Sanford Michael Katz Administrative File No. 3-17900 (Apr. 4, 2017).
According to the Order, between January 1, 2009 and January 21, 2014, while Katz was an investment adviser representative (relationship manager) of Credit Suite’s private banking business, PB North America, his clients were offered a selection of different share classes of mutual funds to invest in. One of those share classes – Class A shares – contained sales charges based on the amount that the client invested, and contained marketing and distribution fees [12b-1 fees]. Another share class – the institutional share class – was only provided to certain customers such as those who were investing at a minimum threshold or who were part of an eligible program. Those investors eligible for institutional shares generally avoided paying 12b-1 fees, which lowered their overall costs.
Katz reportedly bought Class A mutual funds for his investment advisor clients. Apparently, those advisory clients had been eligible at the time to instead buy or hold institutional share classes of the funds. SEC stated that it would have been less expensive for Katz’s clients to purchase those institutional share classes. Ultimately, Katz’s advisory clients had been routinely placed in Class A shares despite those customers having less expensive ways to invest in the same overall securities portfolio.
The Order stated that the Class A shareholders were required to pay marketing and distribution fees which amounted to twenty-five basis points annually. Apparently, those 12b-1 fees were normally paid out of the fund’s assets as part of the expense ratio. However, in the case involving Katz’s clients, the 12b-1 fees had been directed to the firm, where the firm would ultimately set aside a large share of those fees for the firm’s relationship managers. The Order noted that Katz’s advisory clients’ saw decreases in the value of their mutual fund investments through the assessments of the 12b-1 fees, while at the same time, Katz saw his compensation increase.
Ultimately, Katz enabled the firm to generate an estimated $2,500,000.00 in revenue because of the 12b-1 fees that were assessed to customers. The Order stated that of the $2,500,000.00 received by the firm, $1,100,000.00 had been handed to Katz. The Order stated that Katz’s activities failed to be consistent with the fiduciary duties that he owed to his clients. That is, Katz failed to attempt to procure the best execution price for those advisory clients. Consequently, SEC found Katz’s conduct to be violative of investment Adviser Act Section 206(2).
Katz’s registration with Credit Suisse Securities (USA) LLC has been terminated as of December 18, 2015. Since December 18, 2015, Katz has been employed by Wells Fargo Clearing Services, LLC.
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