John Harnish Subject of SEC Cease and Desist Order
John Harnish (CRD #: 4813106), a broker registered with Cadaret, Grant & Company, was the subject of recent SEC regulatory action, according to his BrokerCheck record, accessed on July 30, 2022. Investors may also have worked with John Harnish through Prosperity Advisory Group. Read on if you have questions about John Harnish’s conduct as a broker.
SEC Regulatory Action
On June 6, 2022, the Securities and Exchange Commission administered cease-and-desist proceedings against John Harnish, doing business as KM Advisory Services, for allegedly breaching his fiduciary duty as an investment adviser.
Specifically, the SEC alleges that KM Advisory Services and John Harnish received mutual fund fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”) and commissions from clients’ investments without fully and fairly disclosing their conflicts of interest.
Starting in at least January 2016 and continuing through December 2020, KM Advisory Services allegedly invested the majority of clients’ assets in mutual funds that paid 12b-1 fees and charged sales load commissions through an introducing broker-dealer which employed John Harnish as a broker.
This allegedly led clients to pay 12b-1 fees and commissions to this broker-dealer, a portion of which went to KM Advisory Services and John Harnish. KM Advisory Services allegedly failed to fully disclose this arrangement and the accompanying conflicts of interest to clients.
The SEC further alleges that KM Advisory Services breached its fiduciary duty by failing to routinely compare the broker-dealer’s order execution with other broker-dealers, resulting in the firm’s clients investing in share classes of mutual funds that may have offered less favorable fees than share classes in the same funds offered by other brokerages.
Lastly, the SEC alleges that KM Advisory Services failed to establish and implement written compliance policies and procedures to prevent violations of the Investment Advisers Act of 1940 and the relevant rules concerning mutual fund share class and broker-dealer selection practices.
The SEC found that these allegations constituted violations of Sections 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-7 thereunder.
The Investment Advisers Act
Section 206 of the Investment Advisers Act prohibits the use of deceptive, manipulative, and otherwise fraudulent schemes and practices.
Rule 206(4)-7 requires investment advisers to establish and enforce policies and procedures to prevent violation of the Investment Advisers Act, conduct annual reviews of these policies and procedures, and appoint a chief compliance officer.
As a result of this action, John Harnish faced the following sanctions:
- $75,000 fine
- $220,097.30 disgorgement
- $5,549.69 prejudgment interest
- Cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder
John Harnish has passed the following exams:
- Series 63 – Uniform Securities Agent State Law Examination
- SIE – Securities Industry Essentials Examination
- Series 7 – General Securities Representative Examination
- Series 24 – General Securities Principal Examination
John Harnish is a registered broker in 17 states and a registered investment adviser in New York.
Kurta Law Can Help
If you worked with John Harnish and you have concerns about your investments, please contact us today at 877-600-0098 or email@example.com for a free consultation.
For over 20 years, Kurta Law has advocated on behalf of investors who want to recover their investment losses from brokers and brokerage firms. Kurta Law is a nationally recognized law firm and exclusively represents investors against brokers and brokerage firms on a contingency basis. This means that the firm only earns a fee if our securities attorneys recover money on your behalf.