Commonwealth Financial Network will pay $5 million to settle a long-running legal battle with the U.S. Securities and Exchange Commission that began in 2019.

The final penalty is far lower than the original $93 million penalty levied by federal judges during the original proceedings, which a federal appeals court in Massachusetts later overturned.

Peggy Ho, a senior vice president, general counsel and chief risk officer with Commonwealth, told Wealth Management that “we are pleased with this resolution and happy to put this matter behind us.”

Last month, the SEC reached a settlement agreement with the Massachusetts-based independent broker/dealer in a case focused on the firm’s failure to disclose conflicts of interest when recommending certain mutual fund share classes to clients. At the time, U.S. District Judge Indira Talwani granted the parties until the end of March to negotiate the terms.

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According to the original case, Commonwealth had an arrangement with clearing broker National Financial Services, in which reps could recommend mutual fund shares through programs with and without transaction fees.

However, the firms allegedly had a revenue-sharing agreement that made it more profitable to put clients’ funds in certain mutual fund share classes, which were more expensive for clients than other share classes of the same funds. 

Between July 2014 and March 2018, Commonwealth received about $58.7 million from client assets invested in no-transaction-fee share classes, compared with $77 million in payments from client assets invested in share classes with transaction fees during the same period.

According to the SEC’s case, Commonwealth knew that the more affordable options would save clients’ costs while resulting in lower revenue for the firm. But the firm failed to tell clients that the recommendations for the higher- and lower-cost share classes were conflicted. Even after revising its disclosures in 2017, the firm didn’t clarify that the conflicts were real, not theoretical.

In 2024, Judge Talwani ordered Commonwealth to pay $93 million, including $65,588,906 in disgorgement, as well as prejudgment interest totaling $21,185,162 and a civil penalty totaling $6.5 million. 

The following month, Commonwealth appealed to the First Circuit Court of Appeals. Last year, the court overturned Talwani’s original judgment and penalty, agreeing with Commonwealth’s arguments that some aspects of the case should have been heard at a jury trial, as opposed to the SEC winning a motion for summary judgment (in which a judge decides on the merits of a case before it reaches a jury).

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The court remanded the case back to the district court, where it continued until last month’s settlement agreement.

The First Circuit decision came the same week LPL Financial announced it had acquired Commonwealth, with 3,000 advisors and $305 billion in assets, for a purchase price of about $2.7 billion in cash. On LPL’s most recent earnings call, CEO Rich Steinemier said retention of advisor assets with Commonwealth after the deal remains in the low 80% range.