Published on:

The SEC Charges Two Mutual Fund Directors With Misleading Shareholders

The Securities and Exchange Commission (“SEC”) charged two investment firms, Northern Lights Compliance Services LLC and Gemini Fund Services, which operated the Northern Lights Fund Trust and the Northern Lights Variable Trust mutual funds, with misleading shareholders about the factors the firm considered when determining whether to hire investment advisers for the firm. Federal securities laws require that mutual fund directors evaluate and approve the mutual fund’s contracts with their investment advisers. Further, the securities laws mandate that the mutual fund directors accurately report the material factors considered during the evaluation of the investment advisers’ contracts to the mutual fund shareholders. After an investigation, the SEC determined that the directors of the Northern Lights Fund Trust and the Northern Lights Variable Trust mutual funds misrepresented the material factors they considered when reviewing their investment adviser contracts. The SEC further found that Northern Lights Compliance Services LLC, the trustee and trusts’ chief compliance officer, as well as Gemini Fund Services, the trusts’ fund administrator, violated various SEC compliance rules, as well as violated the Investment Company Act recordkeeping and reporting provisions. The firms and other trustees have agreed to settle the charges with the SEC. George S. Canellos, Co-Director of the SEC’s Division of Enforcement, made the following statement to the media, “[d]etermining terms of the investment advisory contract, especially compensation of the adviser, is one of the most critical duties of a mutual fund board. We will aggressively enforce investors’ rights to accurate and complete information about the board’s process and decision-making.”

Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Additionally, Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of sales practice abuses. Please contact our team of attorneys for a consultation at (212) 696-1999.