A federal court has ordered Ambassador Advisors, a “biblically-based” financial advisory firm, to pay over $2 million in fines for failing to act in the best interests of its clients and instead enriching itself.
U.S. District Judge for the Eastern District of Pennsylvania John Gallagher ordered Ambassador—based in Lancaster, Pennsylvania—and its principals to pay civil penalties, pre-judgment interest, and disgorgement. Disgorgement refers to the repayment of “ill-gotten gains.”
The firm also was required to remove misleading statements from its website, which it has done, and to send clarifying notices to its clients.
The firm publicó un comunicado online, stating it “vehemently disagrees” with and is “extremely disappointed” in the court’s decision. Ambassador added it will focus all its “time and attention on serving our clients in this time of market turmoil.”
Founded by Robert Kauffman in 1990, Ambassador Advisors says its mission is “[t]o support and promote Biblical stewardship through appropriate financial planning, estate strategies, and money management services for the benefit of nonprofits, charities, individual donors, and investors.”
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It claims to have a passion for being a “conduit for Kingdom work throughout the world.”
One of the firm’s values is “to act and communicate with credibility, truth, and trust in all business interactions; we demonstrate a repentant attitude if we fail and a forgiving attitude if others do.”
In May 2020, the U.S. Securities and Exchange Commission (SEC) filed a civil action against the firm and its principals, Bernard Bostick, Robert Kauffman, and Adrian Young, for “unlawfully invest[ing] their advisory clients in mutual fund share classes with 12b-1 fees when lower-cost mutual fund share classes were available to the clients” from August 2014 through December 2018.
During the period in question, Ambassador Advisors handled between $270.6 million and $489.6 million in assets for 2,600 to 4,300 clients, most of which were individuals.
These 12b-1 fees, which take their name from the SEC regulation governing them, are paid out of mutual funds to cover the costs of distribution and shareholder services.
Bostick, Kauffman, and Young “enriched themselves” from the 12b-1 fees being charged, according to the court filings, rather than revealing to clients that lower cost funds presented “a more favorable value.”
Ambassador’s own handbook required it act in the fiduciary interest of its clients and “must at all times … [p]lace the interests of Advisory Clients first.”
The SEC complaint asserted that Ambassador failed in its fiduciary duty to disclose the conflicts of interest “fully and fairly” to its clients, so they could give “informed consent to the conflicts.”
In its answer to the SEC’s complaint, Ambassador claimed that it did provide “sufficiently specific facts” to reveal any conflict of interest. The firm added that even if it had provided the facts the SEC claimed were required, the addition would have had no real impact.
Ambassador also claimed that the SEC did not provide sufficient notice of its disclosure requirements so that Ambassador could comply with them. Furthermore, it alleged that the SEC did not follow proper rule-making procedures under the Administrative Procedures Act.
In March 2022, a jury found Ambassador Advisors and its principals liable for breaching its fiduciary duties to their clients.
In his final opinion on September 7, U.S. District Judge John Gallagher noted that Ambassador had received at least three notices from its compliance consultant informing it that the SEC was enforcing actions against other firms with similar practices.
Gallagher, in evaluating Ambassador’s actions wrote about it “obstructing the SEC’s discovery efforts and responding to client questions about fees with less than transparent answers.”
“Defendants have also failed to acknowledge the wrongful nature of their conduct. Shortly after the jury returned its verdict in this case, Defendants released a video and statement declaring that their “clients were never overcharged, nor were gains or returns compromised in any way,” he continued.
los video is no longer available for public viewing.
Gallagher did not issue a permanent injunction against Ambassador Advisors because it is no longer purchasing 12b-1 based mutual funds and has a “generally positive regulatory history.”
“We move confidently into the future, expressing our grateful thanks to the overwhelming support from our clients and the community through these many months,” Ambassador stated online.
Kim Roberts is a freelance writer who holds a Juris Doctor from Baylor University. She has homeschooled her three children and is happily married to her husband of 25 years.