The Securities and Exchange Commission (SEC) today announced settled charges against New York-based investment adviser Papamarkou Wellner Asset Management, Inc. for failing to comply with the terms of its advisory agreements relating to advisory fee calculations, providing disclosures to clients that were materially inconsistent with the firm’s actual advisory fee offset practices, and failing to implement certain written compliance policies and procedures.

According to the SEC’s order, from 2004 until March 2024, Papamarkou’s client advisory agreements provided that if it or its affiliated broker-dealer received referral, solicitation or placement fees from a third-party investment adviser, fund manager, or issuer on account of a client’s investment, Papamarkou would offset the client’s advisory fee by the amount of such fee, to the extent that it did not exceed the client’s advisory fee.

Additionally, Papamarkou’s Form ADV Part 2A Brochures from at least 2015 to January 2022 similarly described its practice to offset client advisory fees. The order finds that, contrary to these documents, between at least 2019 and January 2022, Papamarkou did not deduct from client advisory fees a portion of the fees its affiliated broker-dealer received from six third-party fund managers and that Papamarkou failed to credit clients with at least $282,921.82.

The order further finds that Papamarkou’s practice created a conflict of interest because it had an incentive to recommend investments in funds managed by the fund managers because of the additional compensation it stood to receive without offsetting client advisory fees by the same amount, and that Papamarkou did not disclose this conflict or its extent to its clients.

In addition, the order finds that from at least 2019 through March 2024, Papamarkou failed to implement certain of its written compliance policies and procedures that required the firm to ensure that it calculated client advisory fees in the manner described in its advisory agreements and to update or amend its advisory agreements to accurately reflect its business practices.

The SEC’s order finds that Papamarkou willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting the SEC’s findings, Papamarkou agreed to a cease-and-desist order, a censure, and to pay disgorgement of $282,921.82, prejudgment interest of $81,037.23, and a civil penalty of $125,000.00.

The ordered monetary relief will be distributed to affected clients to the extent feasible.