(Article from Registered Funds Regulatory Update, July 2024)
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The SEC settled charges against five registered investment advisers for Marketing Rule violations.
According to the Orders, the RIAs advertised hypothetical performance on their public websites without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance data “was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience,” as required by the Marketing Rule.
The Order also found that one RIA violated other regulatory requirements under the Investment Company Act, including by making false and misleading statements in advertisements, advertising misleading model performance, failing to substantiate performance including in its advertisements, and failing to enter into written agreements for compensated endorsements in return for client referrals. The Order further found that the RIA committed recordkeeping and compliance violations and made misleading statements about its performance to a RIC client about the performance of a tracking account that it advised, which were included in the RIC’s prospectus filed with the SEC.
Without admitting or denying the SEC’s findings, each RIA consented to the entry of orders finding that it violated the Advisers Act and agreed to a censure, cease-and-desist order, and to comply with certain undertakings. One firm also agreed to a cease-and-desist order from future violations of the Investment Company Act and a civil monetary penalty of $100,000. The other four RIAs agreed to pay reduced civil monetary penalties ranging from $20,000 to $30,000, which reflected certain corrective steps taken by each of them prior to the SEC’s involvement.
This is the second set of cases that the SEC has brought as part of its ongoing targeted sweep of Marketing Rule violations after having charged nine advisory firms in September 2023. Notably, for the first time, one of the current Orders included a violation of Section 34(b) of the Investment Company Act, which makes it unlawful for any person to make any untrue statement of a material fact, or omit to state a fact necessary to prevent any statements made from being materially misleading, in a registration statement or other document filed with the SEC. Previously, all other violations to date have been brought under the Advisers Act.
In the Matter of Gea Sphere, LLC, SEC Admin. File No. 3-21906 (Apr. 12, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6585.pdf.
In the Matter of Insight Securities, Inc., SEC Admin. File No. 3-21909 (Apr. 12, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6586.pdf.
In the Matter of Monex Asset Management, Inc., SEC Admin. File No. 3-21910 (Apr. 12, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6587.pdf.
In the Matter of Credicorp Capital Advisors LLC, SEC Admin. File No. 3-21911 (Apr. 12, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6588.pdf.
In the Matter of Bradesco Global Advisors Inc., SEC Admin. File No. 3-21912 (Apr. 12, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6589.pdf.