Investment Research Corp

Allegations: FAILING TO MAKE REQUIRED DISCLOSURES RELATING TO THEIR SELECTION OF MUTUAL FUND SHARE CLASSES THAT PAID THE ADVISERS (AS DUALLY REGISTERED BROKER-DEALERS) OR THEIR RELATED ENTITIES OR INDIVIDUALS A FEE PURSUANT TO RULE 12B-1 OF THE INVESTMENT COMPANY ACT OF 1940 ("12(B)-1" FEE) WHEN A LOWER-COST SHARE CLASS FOR THE SAME FUND WAS AVAILABLE TO CLIENTS" AND ADEQUACY OF THE DISCLOSURES ARISING FROM THE RESULTING CONFLICTS OF INTEREST. Status: Final Sanction Detail: IRC WAS ISSUED A CEASE AND DESIST ORDER BY THE SEC AND MADE CLIENTS WHOLE WHO WERE ADVERSELY AFFECTED BY SHARE CLASS SELECTION WHEN A LOWER-COST SHARE CLASS FOR THE SAME FUND WAS AVAILABLE TO THE CLIENT. RESTITUTION WAS MADE TO 38 ACCOUNT HOLDERS (SEVERAL OF WHICH HAD MULTIPLE ACCOUNTS WITHIN THE SAME HOUSEHOLD) IN AMOUNTS THAT TOTALED $33,188. RESTITUTIONS WERE MADE IN MAY AND JUNE OF 2019 WITH ONE PAYMENT BEING MADE IN FEBRUARY OF 2020 (ONCE THE FORMER CLIENT HAD BEEN LOCATED). Summary: REGISTERED INVESTMENT ADVISERS ARE REQUIRED TO DISCLOSE ALL MATERIAL FACTS REGARDING ANY LEGAL OR DISCIPLINARY EVENTS THAT WOULD BE MATERIAL TO YOUR EVALUATION OF THE FIRM OR THE INTEGRITY OF THE FIRM'S MANAGEMENT. LIKE MANY ADVISORY FIRMS, INVESTMENT RESEARCH CORPORATION VOLUNTARILY PARTICIPATED IN THE SHARE CLASS SELECTION DISCLOSURE ("SCSD") INITIATIVE. THE SECURITY AND EXCHANGE COMMISSION ("SEC") DESCRIBED THE SCSD INITIATIVE AS "A SELF-REPORTING PROGRAM DESIGNED TO ADDRESS POTENTIALLY WIDESPREAD VIOLATIONS OF THE FEDERAL SECURITIES LAWS RESULTING FROM INVESTMENT ADVISERS FAILING TO MAKE REQUIRED DISCLOSURES RELATING TO THEIR SELECTION OF MUTUAL FUND SHARE CLASSES THAT PAID THE ADVISERS (AS DUALLY REGISTERED BROKER-DEALERS) OR THEIR RELATED ENTITIES OR INDIVIDUALS A FEE PURSUANT TO RULE 12B-1 OF THE INVESTMENT COMPANY ACT OF 1940 ("12(B)-1" FEE) WHEN A LOWER-COST SHARE CLASS FOR THE SAME FUND WAS AVAILABLE TO CLIENTS" AND ADEQUACY OF THE DISCLOSURES ARISING FROM THE RESULTING CONFLICTS OF INTEREST. A 12(B)-1 FEE IS AN ANNUAL MARKETING OR DISTRIBUTION FEE ON A MUTUAL FUND. THE 12B-1 FEE IS CONSIDERED TO BE AN OPERATIONAL EXPENSE AND, AS SUCH, IS INCLUDED IN A FUND'S EXPENSE RATIO. IT IS GENERALLY BETWEEN 0.25% AND 0.75% (THE MAXIMUM ALLOWED) OF A FUND'S NET ASSETS." IRC ALSO ENGAGED IN CERTAIN UNDERTAKINGS INCLUDING REVIEWING AND UPDATING, WHERE NECESSARY, THE ADEQUACY OF ALL RELEVANT DISCLOSURE DOCUMENTS CONCERNING MUTUAL FUND SHARE CLASS SELECTION AND 12B-1 FEES; EVALUATING WHETHER EXISTING CLIENTS SHOULD BE MOVED TO LOWER COST SHARE CLASSES; AS WELL AS REVIEWING ITS POLICIES AND PROCEDURES TO ENSURE THEY ARE REASONABLY DESIGNED TO PREVENT VIOLATIONS OF THE ADVISERS ACT IN CONNECTION WITH DISCLOSURES REGARDING MUTUAL FUND SHARE CLASS SELECTION. THE SCSD ORDER FOUND IRC WILLFULLY VIOLATED; 1) SECTION 206(2) OF THE ADVISERS ACT WHICH MAKES IT UNLAWFUL FOR ANY INVESTMENT ADVISER, DIRECTLY OR INDIRECTLY TO "ENGAGE IN ANY TRANSACTION, PRACTICE OR COURSE OF BUSINESS WHICH OPERATES AS A FRAUD OR DECEIT UPON ANY CLIENT OR PROSPECTIVE CLIENT," AND 2) SECTION 207 OF THE ADVISERS ACT WHICH MAKES IT "UNLAWFUL FOR ANY PERSON WILLFULLY TO MAKE ANY UNTRUE STATEMENT OF A MATERIAL FACT IN ANY REGISTRATION APPLICATION OR REPORT FILED WITH THE COMMISSION? OR WILLFULLY TO OMIT TO STATE IN ANY SUCH APPLICATION OR REPORT ANY MATERIAL FACT WHICH IS REQUIRED TO BE STATED THEREIN." ADDITIONAL INFORMATION REGARDING THE SCDC INITIATIVE MAY BE FOUND AT HTTPS://WWW.SEC.GOV/ENFORCE/ANNOUNCEMENT/SCSD-INITIATIVE