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Advice with Borders

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The Securities and Exchange Commission settled with Credit Suisse for providing financial services to U.S. clients without having registered with the SEC. The Swiss firm's efforts at winning American business were successful enough to generate more than 8,000 U.S. client accounts with more than $5 billion in assets. The firm took inadequate steps to ensure that it was in compliance with U.S. law and, even after deciding to stop offering cross-border advice, the firm took several years to close U.S. accounts. The settlement includes an admission of wrongdoing and a $196 million payment consisting of disgorgement of the firms' fees, plus interest and a $50 million penalty.

That kind of money suggests that clients were really harmed, but the complaint does not reveal any investor harm. Indeed, the delay in shutting the cross-border program down appears to have stemmed in part from reluctance of clients to part with their advisers. Contrast the Credit Suisse settlement with a settlement last year with a registered adviser that the SEC alleges stole more than $3 million from a police and firefighter pension fund to buy shopping malls. The settlement consisted only of requiring the adviser to repay the money it had allegedly stolen. A sophisticated global firm like Credit Suisse has the wherewithal to understand and comply with registration requirements, but the SEC's disproportionately large settlement in a case without discernible investor harm will dissuade other foreign firms from registering to serve U.S. investors. Such a result is not good for investors, who ought to be able to seek advice overseas.

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