The U.S. Securities and Exchange Commission (SEC) announced the filing of settlement charges against Catalyst Capital Advisors LLC, a registered investment adviser headquartered in San Juan, Puerto Rico, for entering into an impermissible joint legal fee arrangement with its client, Mutual Fund Series Trust, an open-end fund end investment company registered with the an SEC-registered open-end fund terminal investment company, resulting in the mutual funds temporarily paying disproportionately high fees.

The SEC's order found that Catalyst improperly arranged for the Trust to pay, at least initially, legal fees and expenses related to a regulatory investigation and private litigation after Catalyst's Hedge Futures Strategy Fund, a series of funds in the Trust, suffered significant losses.

According to the order, Catalyst and the Trust began receiving inquiries from the SEC and another regulator regarding the losses of the Hedge Futures Fund in February 2017, followed by the filing of a class action lawsuit in April 2017 and a shareholder derivative lawsuit in August 2017.

The Order also found that Catalyst and the Trust retained the same legal counsel to represent them in these matters and that, without the approval or knowledge of the Trust's independent trustees, Catalyst arranged for the Trust to pay legal fees and related expenses and subsequently submitted these bills to the Trust's insurers, including expenses related to Catalyst's legal representation.

Pursuant to the Order, Catalyst avoided paying legal fees from May 2017 through March 2020, and only after that time reimbursed the Trust for its share of the costs. The order found that Catalyst benefited from the impermissible joint arrangement by, among other things, deferring payment of its legal fees for many years.

The SEC's order found that Catalyst violated Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 thereunder, which prohibit joint transactions with affiliates of registered investment companies, and Section 206(2) of the Investment Advisers Act of 1940, the antifraud provisions of the securities laws.

Without admitting or denying the findings, Catalyst consented to the entry of a cease-and-desist order and a censure and to the payment of $280,902 in ill-gotten gains, of which $183,757 was offset by prior payments to the Trust, $30,081 in pre-judgment interest, and civil money penalties. A fine of $200,000 was imposed.