Thoroughbred Financial Services and Affiliated Advisors Sanctioned with Cease-and-Desist Order involving Mutual Fund Share Class Selection Practices

• March 26, 2025
• Thoroughbred Financial Services

Thoroughbred Financial Services, LLC (CRD#: 47893/SEC#: 801-56741, 8-51944) has been registered with the SEC and FINRA since 2000.

Thomas Jenkins Parker (CRD#: 356789) has been a registered broker and investment advisor with Thoroughbred Financial Services, LLC since 2000.

Lawrence Randall Hartley (CRD# 1235172) has been a registered broker and investment advisor with Thoroughbred Financial Services, LLC since 2000.

Allegations of Misconduct

According to publicly available records released by the U.S Securities and Exchange Commission (SEC), in December of 2018, The Securities and Exchange Commission deemed it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted against Thoroughbred Financial Services, LLC (“TFS” or the “firm”), Thomas Jenkins Parker (“Parker”), and Lawrence Randall “Randy” Hartley (“Hartley”) (collectively, “Respondents”).

On the basis of this Order and Respondent Hartley’s Offer, the Commission finds that these proceedings arise from breaches of fiduciary duty and inadequate disclosures by TFS, Parker and Hartley in connection with their mutual fund share class selection practices, as well as misleading statements and omissions they made upon revising TFS’s practices after a Commission examination.

Between at least October 2012 and August 2016, Respondents invested, recommended or held certain advisory client assets in mutual fund share classes that paid fees pursuant to Rule 12b-1 under the Investment Company Act of 1940 (“12b-1 fees”) instead of available, lower-cost share classes of the same funds without 12b-1 fees. TFS (as a broker-dealer), and Parker, and Hartley (as TFS registered representatives) received the 12b-1 fees based on these investments. These practices created a conflict of interest, were contrary to Respondents’ disclosures regarding TFS’s Code of Ethics, and were not disclosed adequately to firm clients in TFS’s Forms ADV or otherwise. Respondents also breached their duty to seek best execution for their clients by investing them in mutual fund share classes with 12b-1 fees rather than lower-cost share classes of the same funds. Moreover, by choosing higher-cost share classes for firm clients, TFS, in some client transactions, avoided paying certain mutual fund transaction clearance, or “ticket,” charges that TFS otherwise would have paid.

TFS failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder in connection with its mutual fund share class selection practices. Finally, in the process of converting clients to lower-cost share classes after receiving a Commission examination deficiency letter in April 2016, various firm investment adviser representatives (“IARs”), including Parker and Hartley, made misleading statements and omissions to clients about the prior costs and availability of lower-cost share classes. While at the same time asking many of the same clients to agree to higher account management fees, which nearly all clients accepted. By virtue of this conduct, Respondent Hartley willfully violated Section 206(2) of the Advisers Act.

The Commission ordered TFS to pay disgorgement of $740,250.20, prejudgment interest of $108,368.10, and a civil penalty of $260,000; Parker to pay disgorgement of $217,883.16, prejudgment interest of $31,750.80, and a civil penalty of $75,000; and Hartley to pay disgorgement of $158,032.42, prejudgment interest of $22,957.20, and a civil penalty of $65,000; for a total of $1,679,241.88. The Commission also created a Fair Fund, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, so the penalties paid, along with the disgorgement and prejudgment interest paid, could be distributed to harmed investors (the “Fair Fund”).

Pursuant to the Order, TFS was responsible for administering the Fair Fund at its own expense pursuant to a calculation specified in the Order. TFS disbursed the Fair Fund to those current or former advisory clients harmed by the conduct described in the Order. TFS applied a $15 de minimis to checks required to be mailed to former customers. TFS did not apply a de minimis amount to credits to current customers. TFS successfully distributed $1,661,011.23 (98.7%) to harmed investors. Distribution payments ranged from $0.40 to $22,691.42. TFS returned a total of $26,355.45 to the Commission, consisting of $21,300.90 to of uncashed checks, returned funds, and other residual amounts (e.g., amounts resulting from rounding) and $5,054.55 in earned interest.

For a copy of the Cease-and-Desist order, click here.

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Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

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Excessive trading often occurs when a Financial Advisor puts his or her interests ahead of the clients and makes transactions solely for the purpose of generating commissions. Financial Advisors have a regulatory duty to recommend suitable investment strategies. One of the components of the suitability analysis is quantitative suitability.

Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation. Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.