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SEC Punishes Bank For Giving Clients Illegal Investment Advice

A Swiss Bank agreed to pay $12.5 million to the U.S. government, because it gave U.S. clients investment advice without registering with the Securities and Exchange Commission, the agency said Tuesday.

HSBC Swiss Private Bank admitted it collected $5.7 million in fees for providing investment and brokerage advice to hundreds of U.S. clients for about seven years, until it exited the business in 2010. It’s employees made dozens of trips to the States to get new clients and advise investors which bonds, stocks, and other securities to invest in.

Under current SEC regulations, it’s illegal for investment advisers who are not registered with the SEC to deal with U.S. clients. Although the bank knew it was probably breaking Federal securities laws, it decided against registering with the SEC, which regulates the U.S. securities market and enforces securities laws.

In a settlement with the SEC, HSBC admitted to willfully violating the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, and agreed to pay back the $5.7 million, plus $4.2 million in interest and a $2.6 million penalty. The bank also agreed to accept a statement of strong disapproval from the SEC and an order to cease and desist unlawful activity.

The goal of SEC regulations, according to the SEC, is to prevent people from making bad investments by ensuring they have access to relevant facts about the securities they’re investing in.

“The world of investing is fascinating and complex, and it can be very fruitful,” the SEC explains. “But unlike the banking world, where deposits are guaranteed by the federal government, stocks, bonds and other securities can lose value. There are no guarantees.”

In a similar case, Credit Suisse AIG settled with the SEC for $196 million in February, admitting it collected $82 million in fees for investment advice without registering.

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