Thoroughbred Financial Services, Llc

Allegations: SEC ADMIN RELEASE 34-84918: IA RELEASE 40-5090 / DECEMBER 21, 2018: THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") DEEMS IT APPROPRIATE AND IN THE PUBLIC INTEREST THAT PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS BE, AND HEREBY ARE, INSTITUTED PURSUANT TO SECTION 15(B) OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT") AND SECTIONS 203(E), 203(F), AND 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940 ("ADVISERS ACT") AGAINST THOROUGHBRED FINANCIAL SERVICES, LLC ("TFS" OR THE "FIRM"), THOMAS JENKINS PARKER ("PARKER"), AND LAWRENCE RANDALL "RANDY" HARTLEY ("HARTLEY") (COLLECTIVELY, "RESPONDENTS"). IN ANTICIPATION OF THE INSTITUTION OF THESE PROCEEDINGS, TFS, PARKER, AND HARTLEY HAVE SUBMITTED OFFERS OF SETTLEMENT (THE "OFFERS") WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. SOLELY FOR THE PURPOSE OF THESE PROCEEDINGS AND ANY OTHER PROCEEDINGS BROUGHT BY OR ON BEHALF OF THE COMMISSION, OR TO WHICH THE COMMISSION IS A PARTY, AND WITHOUT ADMITTING OR DENYING THE FINDINGS HEREIN, EXCEPT AS TO THE COMMISSION'S JURISDICTION OVER RESPONDENTS AND THE SUBJECT MATTER OF THESE PROCEEDINGS, WHICH ARE ADMITTED, RESPONDENTS CONSENT TO THE ENTRY OF THIS ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 15(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTIONS 203(E), 203(F), AND 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND DESIST ORDER ("ORDER"), AS SET FORTH BELOW. ON THE BASIS OF THIS ORDER AND RESPONDENTS' OFFERS, THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE FROM BREACHES OF FIDUCIARY DUTY AND INADEQUATE DISCLOSURES BY TFS, A REGISTERED INVESTMENT ADVISER AND BROKER-DEALER, PARKER AND HARTLEY IN CONNECTION WITH THEIR MUTUAL FUND SHARE CLASS SELECTION PRACTICES, AS WELL AS MISLEADING STATEMENTS AND OMISSIONS THEY MADE UPON REVISING TFS'S PRACTICES AFTER A COMMISSION EXAMINATION. BETWEEN AT LEAST OCTOBER 2012 AND AUGUST 2016 (THE "RELEVANT PERIOD"), RESPONDENTS INVESTED, RECOMMENDED OR HELD CERTAIN ADVISORY CLIENT ASSETS IN MUTUAL FUND SHARE CLASSES THAT PAID FEES PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 ("12B-1 FEES") INSTEAD OF AVAILABLE, LOWER-COST SHARE CLASSES OF THE SAME FUNDS WITHOUT 12B-1 FEES. TFS (AS A BROKER-DEALER) AND PARKER AND HARTLEY (AS TFS REGISTERED REPRESENTATIVES) RECEIVED THE 12B-1 FEES BASED ON THESE INVESTMENTS. THESE PRACTICES CREATED A CONFLICT OF INTEREST, WERE CONTRARY TO RESPONDENTS' DISCLOSURES REGARDING TFS'S CODE OF ETHICS, AND WERE NOT DISCLOSED ADEQUATELY TO FIRM CLIENTS IN TFS'S FORMS ADV OR OTHERWISE. RESPONDENTS ALSO BREACHED THEIR DUTY TO SEEK BEST EXECUTION FOR THEIR CLIENTS BY INVESTING THEM IN MUTUAL FUND SHARE CLASSES WITH 12B-1 FEES RATHER THAN LOWER-COST SHARE CLASSES OF THE SAME FUNDS. MOREOVER, BY CHOOSING HIGHER-COST SHARE CLASSES FOR FIRM CLIENTS, TFS, IN SOME CLIENT TRANSACTIONS, AVOIDED PAYING CERTAIN MUTUAL FUND TRANSACTION CLEARANCE, OR "TICKET," CHARGES THAT TFS OTHERWISE WOULD HAVE PAID. DURING THE RELEVANT PERIOD, TFS FAILED TO ADOPT AND IMPLEMENT WRITTEN POLICIES AND PROCEDURES REASONABLY DESIGNED TO PREVENT VIOLATIONS OF THE ADVISERS ACT AND THE RULES THEREUNDER IN CONNECTION WITH ITS MUTUAL FUND SHARE CLASS SELECTION PRACTICES. FINALLY, IN THE PROCESS OF CONVERTING CLIENTS TO LOWER-COST SHARE CLASSES AFTER RECEIVING A COMMISSION EXAMINATION DEFICIENCY LETTER IN APRIL 2016, VARIOUS FIRM INVESTMENT ADVISER REPRESENTATIVES ("IARS"), INCLUDING PARKER AND HARTLEY, MADE MISLEADING STATEMENTS AND OMISSIONS TO CLIENTS ABOUT THE PRIOR COSTS AND AVAILABILITY OF LOWER-COST SHARE CLASSES, WHILE AT THE SAME TIME ASKING MANY OF THE SAME CLIENTS TO AGREE TO HIGHER ACCOUNT MANAGEMENT FEES, WHICH NEARLY ALL CLIENTS ACCEPTED. BY VIRTUE OF THIS CONDUCT, TFS, PARKER, AND HARTLEY WILLFULLY VIOLATED SECTION 206(2) OF THE ADVISERS ACT, AND TFS ALSO WILLFULLY VIOLATED SECTIONS 206(4) AND 207 OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. Status: Final Sanction Detail: RESPONDENT SHALL CEASE AND DESIST; IS CENSURED; AND SHALL PAY DISGORGEMENT OF $740,250.20,PREJUDGEMENT INTEREST OF $108,368.10 AND A CIVIL PENALTY OF $260,000. Summary: WITHOUT ADMITTING OR DENYING THE FINDINGS, THE FIRM CONSENTED TO A SEC CEASE AND DESIST ORDER AND CENSURE, IN ADDITION TO DISGORGEMENT, PREJUDGEMENT INTEREST AND A CIVIL PENALTY. DETAILS OF THE FINDINGS ARE DESCRIBED IN SECTION 7