SEC Settles Enforcement Proceedings Against Adviser for Alleged Marketing Rule Violation
On August 9, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for allegedly advertising hypothetical performance information on its website without adopting and implementing policies and procedures required by Rule 206(4)-1 under the Investment Advisers Act of 1940, also known as the Marketing Rule.
The SEC alleged that from November 4, 2022, through December 15, 2023, the adviser published a quarterly performance report on its public website that included hypothetical performance information for certain portfolios it offered to clients, which was derived from model portfolios. According to the SEC's order, while advertising during the relevant period, the adviser failed to adopt and implement policies and procedures reasonably designed to ensure that the hypothetical performance information contained in its advertising materials was relevant to the likely financial situation and investment objectives of the intended audience. As a result, the SEC found that the hypothetical performance information was disseminated to a mass audience rather than to a particular intended audience.
The SEC found that the adviser willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-1(d) thereunder, which make it unlawful for an investment adviser to include in an advertisement any hypothetical performance information unless the adviser, among other things, “[a]dopts and implements 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.”
Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations, to be censured, and to pay a civil monetary penalty of $430,000. In agreeing to the settlement, the SEC considered the adviser’s cooperation with the SEC staff. This settlement is in line with the SEC’s continued focus on Marketing Rule violations. In particular, in September 2023, April 2024 and June 2024, the SEC settled enforcement actions against additional registered investment advisers involving alleged violations of the Marketing Rule.
The SEC’s order is available here, and the related press release is available here.
Vedder Thinking | Articles SEC Settles Enforcement Proceedings Against Adviser for Alleged Marketing Rule Violation
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August 29, 2024
On August 9, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for allegedly advertising hypothetical performance information on its website without adopting and implementing policies and procedures required by Rule 206(4)-1 under the Investment Advisers Act of 1940, also known as the Marketing Rule.
The SEC alleged that from November 4, 2022, through December 15, 2023, the adviser published a quarterly performance report on its public website that included hypothetical performance information for certain portfolios it offered to clients, which was derived from model portfolios. According to the SEC's order, while advertising during the relevant period, the adviser failed to adopt and implement policies and procedures reasonably designed to ensure that the hypothetical performance information contained in its advertising materials was relevant to the likely financial situation and investment objectives of the intended audience. As a result, the SEC found that the hypothetical performance information was disseminated to a mass audience rather than to a particular intended audience.
The SEC found that the adviser willfully violated Section 206(4) of the Advisers Act and Rule 206(4)-1(d) thereunder, which make it unlawful for an investment adviser to include in an advertisement any hypothetical performance information unless the adviser, among other things, “[a]dopts and implements 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.”
Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations, to be censured, and to pay a civil monetary penalty of $430,000. In agreeing to the settlement, the SEC considered the adviser’s cooperation with the SEC staff. This settlement is in line with the SEC’s continued focus on Marketing Rule violations. In particular, in September 2023, April 2024 and June 2024, the SEC settled enforcement actions against additional registered investment advisers involving alleged violations of the Marketing Rule.
The SEC’s order is available here, and the related press release is available here.
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