/>iAlthough certain enforcement priorities of the U.S. Securities and Exchange Commission (SEC) have shifted under new Chairman Paul S. Atkins, the SEC continues to scrutinize investment advisers’ disclosures regarding the fees charged to their clients. A recent case filed on June 2, 2025, SEC v. Nagler, illustrates that the SEC’s Division of Enforcement continues to police this area to ensure that fees and potential conflicts of interest are disclosed accurately.
Overview
The SEC sued David Nagler and his advisory firm, New Line Capital, LLC, under the antifraud provisions of the Investment Advisers Act of 1940. As alleged in the complaint, New Line was an investment adviser with assets under management (AUM) of nearly $30 million. Nagler was the founder, owner, and chief compliance officer of New Line.
As investment advisers, Nagler and New Line owed fiduciary duties to New Line’s clients. Those duties, according to the complaint, required Nagler and New Line to act in their clients’ best interest, to employ reasonable care to avoid misleading their clients, and to disclose all material facts to their clients.
The SEC alleged that defendants breached their fiduciary duties by making insufficient – and thus misleading – disclosures regarding two types of fees: annual advisory fees and hourly fees for services.
The Annual Fee Disclosures
Regarding the annual fees, each New Line client entered into an advisory agreement, providing that New Line was entitled to an annual management fee. The agreement disclosed that the annual fee ranged from 1.0% to 1.5%, depending on the client’s amount of AUM. The advisory agreement also disclosed that each account was “subject to a minimum annual fee of $10,000.” Additionally, and critically from the SEC’s perspective, the advisory agreement provided that, “[r]egarding our minimum fee, we take care to assure that our standard advisory fee does not compute to be greater than 2% per annum.” (Emphasis in original.)
In the SEC’s view, a “reasonable advisory client” would understand the italicized language above to mean that, regardless of the $10,000 minimum annual fee disclosed in the advisory agreement, the advisory fees New Line charged each year “would be no more than 2% of the value of the client’s [AUM].” Thus, according to the SEC, “if the value of the client’s [AUM] by New Line was $100,000, so that charging the $10,000 minimum annual fee would be 10% per year, Defendants would charge no more than 2% of the client’s [AUM], which would be no more than $2,000.”
The SEC alleged that New Line’s annual fee disclosures were misleading and that clients were charged approximately $125,000 in excess fees.
The Hourly Fee Disclosures
As to hourly fees, New Line disclosed to its clients that “[s]ervices may be offered in connection with advising you on matters not involving your managed assets or securities…. The charge for this consultation is $250 per hour …. Any consulting service fees are in addition to” advisory management fees.
As alleged by the SEC, a “reasonable advisory client” would understand these disclosures to mean that “clients would not be charged Hourly Fees unless the clients accepted an offer from Defendants to provide a specific service in exchange for Hourly Fees.” Further, according to the complaint, multiple clients were charged hourly fees without their specific consent to those fees or their knowledge that those fees were charged to their accounts.
Further, the complaint alleged that defendants breached their fiduciary duties to clients by failing to disclose all material facts regarding the conflicts of interest resulting from the hourly fees. Specifically, by charging hourly fees on a discretionary basis “without specific notice to affected clients,” there was a material conflict of interest between defendants (who allegedly had an interest in charging hourly fees) and clients (who allegedly had an interest in not being charged hourly fees and being informed of each hourly fee charged).
The SEC claimed that, during the relevant period, approximately $325,000 in improper hourly fees were deducted from New Line client accounts.
Takeaways
It remains to be seen how the SEC’s claims will unfold in litigation, but the SEC’s complaint highlights several points for investment advisers:
First, while the SEC policing investment advisers’ fee disclosures is not new, this remains an area of focus for SEC enforcement under new Chairman Atkins. So, it is critical for investment advisers to ensure that their fees and conflicts of interest are properly disclosed, as potentially inaccurate disclosures may come to the SEC’s attention through various sources, including routine examinations, client complaints, or whistleblowers.
Second, simply disclosing a fee may not be sufficient if the wording is not accurate. In the Nagler case, both the minimum annual fee of $10,000 and the $250 per hour consultation fee were disclosed, but, in the SEC’s view, those disclosures conflicted with other language provided to clients in a manner that was misleading.
Third, mid-size and smaller investment advisers should not assume the SEC is more concerned with monitoring larger firms. Indeed, New Line was a relatively small investment adviser – with less than $30 million AUM – yet the SEC saw fit to expend enforcement resources on this matter.
Finally, this case illustrates the old adage that “an ounce of prevention is worth a pound of cure.” While carefully assessing disclosures before a problem arises may seem unnecessary, that view may be shortsighted. The cost of proactive compliance measures likely pales in comparison to the cost of defending against an SEC investigation and litigation.
