Headlines that Matter for Companies and Executives in Regulated Industries

Commonwealth Financial Network Must Pay $72 Million in SEC Enforcement Action

Late last week, a Massachusetts federal judge ordered Commonwealth Financial Network to pay over $72 million due to its “egregious” failure to disclose its conflicts of interest to clients, who could have then used that information to invest in lower-cost mutual funds.

In 2019, the US Securities and Exchange Commission (SEC) sued Commonwealth alleging that the company profited by steering client assets towards certain funds with which it had a cost-sharing arrangement, even though lower-cost alternatives were available. Commonwealth is an investment advisor and broker-dealer that has more than $177 billion in assets under management.

Commonwealth was ordered to pay over $65.6 million in disgorgement, plus prejudgment interest, as well as a $6.5 million civil penalty. The disgorgement amount was based on the amount that an SEC expert argued represented the difference between the revenue Commonwealth earned from its cost-sharing arrangement and what it would have earned if those clients had invested in lower-cost mutual funds. The civil penalty — 10% of the disgorgement amount — was due in part to Commonwealth’s failure to accept responsibility.

The court’s order is available here.

Man Sentenced to 14 Months for Threatening to Kill Justice Roberts

On April 1, a federal judge in the Middle District of Florida sentenced Neal B. Sidhwaney to 14 months in federal prison for threatening to kill US Supreme Court Chief Justice John Roberts.

According to the government, Sidhwaney called Justice Roberts’ chambers in July 2023 and left a voicemail. In the voicemail, Sidhwaney identified himself and twice threatened to kill Justice Roberts. Sidhwaney also allegedly referred to Justice Roberts using derogatory language.

Sidhwaney pled guilty in December 2023 to transmitting an interstate communication that contained a threat to injure.

The judgment is available here.

Prosecutors Seek 25-Month Sentence for NASA Contracts Fraudster

On April 2, Virginia federal prosecutors filed a sentencing memorandum seeking a 25-month sentence for a man who admitted to defrauding investors through fraudulent National Aeronautics and Space Administration (NASA) contracts.

According to prosecutors, Steven Vernon Cross convinced individuals to invest hundreds of thousands of dollars into his company, Commonwealth Applied Silica Technologies LLC (CAST), by falsely representing that CAST held valuable contracts to provide silica-based products to NASA. In October 2023, Cross pled guilty to one count of wire fraud for his role in the scheme.

Even though the federal sentencing guidelines and the pre-sentence report recommended a sentencing range of 33 to 41 months, the government moved for a downward variance to account for eight months Cross spent in a Philippine immigration detention center. According to the government, Cross’s time in the detention center — which had “squalid conditions” — ultimately served as punishment that would deter future criminal conduct.

The US Department of Justice’s (DOJ) motion is available here, and its sentencing memorandum is available here.