Creative Financial Designs, Inc.

Allegations: THE SECURITIES AND EXCHANGE COMMISSION ("COMMISSION") ISSUED PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 15(B) OF THE SECURITIES EXCHANGE ACT OF 1934 ("EXCHANGE ACT") AND SECTIONS 203(E) AND 203(K) OF THE INVESTMENT ADVISERS ACT OF 1940 ("ADVISERS ACT") AGAINST CREATIVE FINANCIAL DESIGNS, INC. ("CREATIVE" OR "RESPONDENT"). THE COMMISSION FINDS THAT THESE PROCEEDINGS ARISE OUT OF BREACHES OF FIDUCIARY DUTY BY CREATIVE, A REGISTERED INVESTMENT ADVISER, IN CONNECTION WITH ITS MUTUAL FUND SHARE CLASS SELECTION PRACTICES AND THE RECEIPT OF CERTAIN REVENUE SHARING PAYMENTS BY ITS AFFILIATED BROKER-DEALER, CFD INVESTMENTS, INC. ("CFD"). FIRST, FROM JANUARY 2014 THROUGH MARCH 2019 (THE "RELEVANT PERIOD"), CREATIVE PURCHASED, RECOMMENDED, OR HELD FOR ADVISORY CLIENTS MUTUAL FUND SHARE CLASSES THAT CHARGED 12B-1 FEES PURSUANT TO RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT OF 1940 ("12B-1 FEES") INSTEAD OF LOWER-COST SHARE CLASSES OF THE SAME FUNDS THAT WERE AVAILABLE TO THE CLIENTS. CFD AND CREATIVE'S INVESTMENT ADVISER REPRESENTATIVES, IN THEIR CAPACITY AS REGISTERED REPRESENTATIVES OF CFD, RECEIVED 12B-1 FEES IN CONNECTION WITH THESE INVESTMENTS, BUT CREATIVE DID NOT ADEQUATELY DISCLOSE THIS CONFLICT OF INTEREST IN ITS FORMS ADV OR OTHERWISE. FURTHER, BY CAUSING CERTAIN ADVISORY CLIENTS TO INVEST IN MUTUAL FUND SHARE CLASSES THAT CHARGED 12B-1 FEES WHEN OTHER SHARE CLASSES OF THE SAME FUNDS THAT PRESENTED A MORE FAVORABLE VALUE FOR THESE CLIENTS UNDER THE PARTICULAR CIRCUMSTANCES IN PLACE AT THE TIME OF THE TRANSACTIONS WERE AVAILABLE TO THE CLIENTS, CREATIVE BREACHED ITS DUTY TO SEEK BEST EXECUTION FOR THOSE TRANSACTIONS. SECOND, DURING THE RELEVANT PERIOD, CREATIVE FAILED TO DISCLOSE TO ITS CLIENTS COMPENSATION THAT CFD RECEIVED THROUGH AGREEMENTS WITH TWO THIRD-PARTY BROKER-DEALERS (THE "CLEARING BROKERS") AND CONFLICTS ARISING FROM THAT COMPENSATION. PURSUANT TO THE AGREEMENTS, THE CLEARING BROKERS AGREED TO SHARE WITH CFD CERTAIN REVENUES THAT THE CLEARING BROKERS RECEIVED FROM THE MUTUAL FUNDS THAT CREATIVE RECOMMENDED TO ITS CLIENTS. CLEARING BROKER 1 AGREED TO SHARE WITH CFD A CERTAIN PERCENTAGE OF REVENUE THAT CLEARING BROKER 1 RECEIVED FROM THE MUTUAL FUNDS FOR PERFORMING CERTAIN ADMINISTRATIVE SERVICES (REFERRED TO AS THE "NETWORKING REVENUE PROGRAM"). CLEARING BROKER 2 AGREED TO SHARE WITH CFD A PORTION OF REVENUE THAT CLEARING BROKER 2 RECEIVED FROM THE MUTUAL FUNDS IN CLEARING BROKER 2'S NO-TRANSACTION-FEE ("NTF") MUTUAL FUND PROGRAM (THE "NTF PROGRAM"). THESE PAYMENTS TO CFD CREATED A CONFLICT OF INTEREST IN THAT THEY PROVIDED A FINANCIAL INCENTIVE FOR CREATIVE TO FAVOR THE MUTUAL FUNDS IN THE NETWORKING REVENUE AND NTF PROGRAMS OVER OTHER INVESTMENTS WHEN GIVING INVESTMENT ADVICE TO ITS ADVISORY CLIENTS. FURTHERMORE, CREATIVE FAILED TO ADOPT AND IMPLEMENT WRITTEN COMPLIANCE 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 AND REVENUE SHARING PRACTICES. CREATIVE, ALTHOUGH ELIGIBLE TO DO SO, DID NOT SELF-REPORT TO THE COMMISSION PURSUANT TO THE DIVISION OF ENFORCEMENT'S (THE "DIVISION") SHARE CLASS SELECTION DISCLOSURE INITIATIVE ("SCSD INITIATIVE"). Status: Final Sanction Detail: RESPONDENT IS CENSURED; ORDERED TO CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 PROMULGATED THEREUNDER; SHALL PAY DISGORGEMENT OF $569,516, PREJUDGMENT INTEREST OF $108,424, AND A CIVIL MONEY PENALTY OF $212,300; AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATED IN THIS ORDER. Summary: RESPONDENT HAS SUBMITTED AN OFFER OF SETTLEMENT, WHICH THE COMMISSION HAS DETERMINED TO ACCEPT. RESPONDENT WILLFULLY VIOLATED SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 THEREUNDER. ACCORDINGLY, IT IS HEREBY ORDERED THAT THE RESPONDENT CEASE AND DESIST FROM COMMITTING OR CAUSING ANY VIOLATIONS AND ANY FUTURE VIOLATIONS OF SECTIONS 206(2) AND 206(4) OF THE ADVISERS ACT AND RULE 206(4)-7 PROMULGATED THEREUNDER; IS CENSURED; SHALL PAY DISGORGEMENT OF $569,516, PREJUDGMENT INTEREST OF $108,424, AND A CIVIL MONEY PENALTY OF $212,300; AND SHALL COMPLY WITH THE UNDERTAKINGS ENUMERATED IN THIS ORDER.