Nine registered investment advisors have been fined $850,000 by the SEC for advertising hypothetical performance to the general public on their websites without adopting or implementing safeguards required by the agency’s marketing rule.
The penalties were issued under a settlement in which the firms neither admitted to nor denied the charges.
The charged RIAs are Banorte Asset Management in Houston, BTS Asset Management in Lincoln, Mass., Elm Partners Management in Philadelphia, Hansen and Associates Financial Group in Sacramento, Calif., Linden Thomas Advisory Services in Charlotte, N.C., Macroclimate in San Francisco, McElhenny Sheffield Capital Management in Dallas,, MRA Advisory Group in Parsippany, N.J., and Trowbridge Capital Partners in New York City.
“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement yesterday.
The marketing rule prohibits RIAs from using “any hypothetical performance in their advertisements unless they have adopted and implemented policies and procedures reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement.”
Two of the advisers, Macroclimate LLC and MRA Advisory Group, also failed to maintain required copies of their advertisements, the SEC said.
Grewal said it was “crucial that investment advisers implement policies and procedures to ensure their compliance with the rule. Until that is the case, we will remain vigilant and continue our ongoing sweep to ensure that investment advisers comply with the Marketing Rule, including the requirements for hypothetical performance advertisements.”
The firms agreed to be censured, cease and desist advertising hypothetical performance without having the requisite policies and procedures and pay civil penalties ranging from $50,000 to $175,000, the SEC said.
The first RIA charged as part of the SEC’s sweep into marketing rule violations was Titan Global Capital Management USA LLC, a New York-based fintech firm, which agreed to pay $1 million to settle charges it had used hypothetical performance metrics in advertisements that were misleading.
The SEC also charged Titan with “multiple compliance failures” that create misleading disclosures about “custody of clients’ crypto assets, use of improper hedge clauses in client agreements, the unauthorized use of client signatures, and the failure to adopt policies concerning crypto asset trading by employees.”
The sweep investigation into marketing rule violations is “ongoing,” the SEC said.