Callan Associates has received a cease-and-desist order from the SEC, which claims Callan did not properly disclose to clients the extent of its relationship with BNY Brokerage between 1998 and 2005, though Callan corrected its disclosure statements in 2005. Callan settled without admitting or denying the charges. Details on the settlement were not available.
“Callan failed to disclose that it was receiving annual payments that were contingent on Callan clients generating a certain level of commissions for BNY,” according to the SEC document. “The omission of this conflict caused Callan’s public disclosures to be misleading.”
In 1998, Callan sold its broker-dealer arm, Alpha Management, to BNY Brokerage in a deal that required BNY to pay Callan a fixed amount per year, according to the document. Eight percent of the annual payment was contingent on Callan generating a certain amount of income for BNY through its clients, though the threshold amount was not stated in the document. Callan sent letters to clients and managers between 1998 and 2005 saying BNY was the firm’s preferred broker-dealer, but the letters did not disclose that Callan was receiving compensation from BNY, the SEC claimed.
In September 2005, following a review by the SEC, the firm changed the language on its letters to disclose that part of BNY’s annual payment was contingent on a certain number of trades going through BNY. The SEC order, issued Wednesday, is an official recognition of the situation. The document does not say why the ruling was issued two years after Callan changed its practices.
Callan also received a notice from the SEC advising the firm it had completed it investigation, said Nancy Malinowski, spokeswoman at Callan. “After completing a process that took nearly four years, we are pleased that the investigation has been terminated,” said Ms. Malinowski. An SEC official could not be reached for comment.
