At Long Last, Closure on SEC Litigation Matter

As you may recall, the Ambassador Advisors team has been involved in a two-year battle with the Securities & Exchange Commission (SEC) regarding mutual fund selections made prior to the switch to our current ETF/Stock models. A jury decision reached in Allentown on Wednesday, March 23, brought this battle to a disappointing close.

For the last eight weekdays, members of Ambassador’s executive team have been in Federal Court, joined by industry experts and a host of others, attempting to put a halt to the SEC Enforcement Division’s program of creating new regulation without following the formal rulemaking process. Despite a well-reasoned case, the jury sided with the SEC and found Ambassador (and its owners) liable for violating Section 206(2) of the Investment Advisers Act.

The issue centered around the adequacy of disclosures Ambassador provided to clients from 2014-2018. Ambassador had a reasonable and good faith belief that our disclosures followed the SEC’s instructions, but the SEC contended that additional language would have been helpful to inform investors about the availability of alternative investments that did not share a portion of their internal fees with Ambassador. This, of course, was part of the revenue model Ambassador had been using since its inception. That model ended with the launch of our ETF/Stock models that have been in use since 2016. Despite those facts, the jury felt that Ambassador Advisors should have said more.

Unfortunately, it doesn’t matter if an advisor is leading a Ponzi scheme or simply omitting preferred disclosure verbiage, any infringement is considered a violation of fiduciary duty to clients. As such, by not having the SEC Enforcement Division’s creative disclosure verbiage in its 2014-2018 documents, Ambassador was deemed to have committed a “fraud or deceit.” Moreover, before and during the relevant time period, the revenue we received from investing mutual fund clients in share classes that generated mutual fund internal fees enabled Ambassador to charge those clients its lowest-tier advisory fee of 1.25%. Had we invested our mutual fund clients in share classes that did not generate revenue from internal fees, then we would have made an upward adjustment to the advisory fee to account for the lost revenue. Thus, despite this case’s outcome, know that clients were never overcharged nor were their gains or returns compromised.

Our team values your trust, and we remain confident that we have always put our clients’ interests first. One of Ambassador Advisors’ core values is Integrity. It was this Integrity that was called into question, when the SEC brought this lawsuit against us. It was this same Integrity that caused the SEC’s own witness, Attorney Frank Tauches, to call the executives of Ambassador, “some of the finest men” he has “ever met” and to note, specifically, how they “care for and protect their clients.” Lastly, it is Ambassador’s Integrity that led us to invest more into defending these allegations than the SEC claimed could have been “saved” by clients. A silver lining in this verdict is that it appears that any financial remedy that may be levied against Ambassador will be put into client accounts that held mutual funds during that time period. We are exceptionally happy to hear this news!

We are grateful for the ongoing prayer support and perseverance of our clients, staff, and families through this trying time. Above all, we have believed throughout the journey that whatever the outcome, God would be glorified in the end result, whether the final decision was in our favor or not. We remain steadfastly secure in this knowledge: God is glorified in this decision, and He is sovereign over all the details of our lives, including our finances and business practices.