Indianapolis-based Goelzer Investment Management Inc. has agreed to pay $500,000 to settle charges from the U.S. Securities and Exchange Commission that it misled many of its clients over a period of 13 years, costing them hundreds of thousands of dollars in trading fees.
The SEC disclosed the settlement Wednesday after sanctioning Goelzer for improper disclosure and compliance related to the firm’s practice of using itself as a broker on client trades.
Also named in the settlement agreement was CEO Gregory W. Goelzer, 54, the son of company founder Don Goelzer.
Goelzer Investment Management, founded in 1969, has been registered as a broker-dealer with the SEC since 1998. The company has about 20 employees, 400 private and institutional clients, and $950 million in assets under management.
The SEC said Goelzer, since at least 2000 and through this year, directed its advisory clients to make trades using Goelzer as the broker without offering other options for executing the trades, as the SEC requires.
According to the SEC, the brokerage misled advisory clients by telling them that they would receive the “best price and execution” on trades by using Goelzer as the broker.
“This disclosure was misleading, as GIM did not take steps to ensure that it was seeking best price and execution for its advisory clients,” the SEC said.
The SEC also said the brokerage told investors in disclosures that “clients who do choose another broker/dealer may not always obtain best price and execution when trades are effected at a broker/dealer other than Goelzer. In particular, clients would not be able to participate in and receive the benefits of lower commission costs as a result of Goelzer’s use of volume transactions block trades.”
The SEC said that statement also was misleading because Goelzer clients “never benefited from lower commissions when GIM aggregated client trades for average pricing purposes.”
In fact, the SEC said, had Goelzer done as it promised, clients “would have saved $309,994 in commission costs from January 2005 through March 2011.”
Goelzer agreed to return the $309,994 to affected clients, and pay $135,000 in civil penalties and $53,800 in interest.
In addition to the fine, Goelzer has agreed to take numerous steps to ensure it complies with SEC regulations. Among them is employing a compliance officer for at least five years who will not take any other position with the company.
During the SEC’s investigation, Goelzer hired a compliance consultant to review the firm’s policies and procedures, and to make sure the firm was making no further violations. As part of the settlement, that consultant will conduct annual compliance reviews for 2013 and 2014.
In addition, Goelzer was ordered to post a notice of the violations on its website within 10 days and to send existing advisory clients notice within 30 days.
“We have fully cooperated with the Securities and Exchange Commission, and we take our responsibility regarding compliance policies and procedures very seriously," Greg Goelzer said in a prepared statement. "After conducting a comprehensive review of our firm’s compliance program, we have implemented internal controls and enhanced our supervisory framework, which now is overseen by a full-time, independent Chief Compliance Officer. We are confident our best practices will more effectively serve our valued clients, whom it has been our privilege to advise for nearly 45 years.”
The SEC also Wednesday sanctioned A.R. Schmeidler & Co., the New York-based subsidiary of Hudson Valley Bank, for similar violations. The firm agreed to pay more than $1 million to settle the claims.
“These cases send a clear message to dually registered investment advisers and broker-dealers,” Andrew Ceresney, co-chief of the SEC’s enforcement division, said in a prepared statement. “Investment advisers must carefully analyze whether their clients are obtaining the most beneficial terms reasonably available for their orders.”