Last week the SEC settled an enforcement action against Chicago Registered Investment Adviser Tilden Loucks & Woodnorth LLC, its affiliated registered broker-dealer, LaSalle St. Securities, LLC, and Tilden’s retired founder, 87 year-old Ralph B. Loucks. The action was instituted as a result of Tilden’s failure to seek best execution for its clients and its failure to disclose the nature of the commissions charged to clients by the affiliated broker-dealer. The SEC’s order instituting the settlement states that during the time period in question most trades for Tilden’s clients were executed by LaSalle, with commission charges to clients averaging more than $143 per trade despite the fact that the majority of consisted of purchases and sales of large cap equities.
Tilden’s ADV falsely stated that “clients obtained a significant ‘discount’ to LaSalle’s scheduled retail brokerage charges.” LaSalle, however, did not have any scheduled retail brokerage charges or commission schedules. Instead, “Tilden set LaSalle’s commission charges at rates exceeding LaSalle’s charge to Tilden to execute a trade and the ‘discount’ was in reality only a price lower than those reflected on a commission schedule used by Tilden that dated to at least 1988.” Tilden, in fact, paid LaSalle an average of just $37.47 to execute clients’ trades. The difference netted Tilden $186,608 in higher commissions paid by the firm’s advisory clients, over $16,000 of which was paid to Loucks.
In addition to focusing on the inaccuracy of Tilden’s ADV disclosures concerning the firm’s commissions from LaSalle, the SEC’s order also emphasizes Tilden’s failure to adhere to its own representations about its best execution policies. The firm’s ADV stated that it would undertake an annual best execution survey to “ensure that transactions executed through [LaSalle] are producing reasonable commission rates and ‘best execution’ of trades as that term is commonly understood.” To the contrary, Tilden conducted no best execution survey until 2009, and thereafter the survey it allegedly conducted was incomplete and failed to analyze the various best execution criteria specifically set forth in the firm’s ADV.
Under the terms of the settlement Tilden is required to revise its ADV pay disgorgement to clients and prejudgment interest of over $200,000.
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