Snowden Lane Partners, a New York-based registered investment advisor managing $15 billion in assets, has settled regulatory charges brought by the Securities and Exchange Commission for failing to properly disclose fee arrangements that created conflicts of interest for retail clients. The firm agreed to pay over $360,000 in disgorgement, interest, and penalties without admitting the SEC’s findings.
Undisclosed Margin Interest Markups
From February 2018 through March 2023, Snowden Lane did not inform advisory clients that its affiliated broker/dealer was marking up margin interest rates on client accounts and collecting those markups as compensation from its clearing firm. Some clients held accounts with both the investment advisory and brokerage divisions, creating an undisclosed financial incentive tied to their margin balances. The regulator determined the firm never disclosed the actual or potential conflicts arising from this arrangement.
In a related matter covering February 2018 through June 2020, the SEC found Snowden Capital, another affiliated entity, failed to fully disclose revenue its broker/dealer earned from its clearing firm based on advisory clients’ assets held in cash sweep money market funds. These overlapping periods revealed systemic disclosure failures across both entities.
Problematic Agreement Language
The order also addresses language in Snowden Lane’s client agreements. Starting in July 2019, the firm included a hedge clause in its advisory agreements purporting to limit its liability to clients. The SEC determined this language was inconsistent with an investment advisor’s fiduciary duty, as it likely misled retail clients into believing they could waive certain legal rights that cannot be forfeited under law.
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The firm adopted internal written policies in June 2023 explicitly prohibiting the use of hedge clauses likely to mislead clients about its liability. Despite adopting that policy, Snowden Lane did not revise its existing client agreements to remove the problematic language, leaving clients bound by the earlier terms.
Settlement Terms and Firm Response
As part of the settlement, the investment advisor consented to a cease-and-desist order and a formal censure. The firm stated that the matter originated from a routine SEC examination in 2022 and concerned the adequacy of certain disclosures, not a failure to disclose. According to the firm, clients received disclosures regarding the compensation arrangements at issue, experienced no investment losses, and the firm updated relevant disclosures and advisory agreement language following the initial examination.
“While we respectfully disagree with the SEC’s position, we chose to resolve the matter without admitting the SEC’s findings and are pleased to have it resolved,” the firm said in a statement.