SEC Settles Enforcement Proceedings Against Adviser for Allegedly Misleading Performance Advertising
On June 14, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for disseminating allegedly misleading performance information of a private fund that it advised. The SEC alleged that from at least November 2021 through February 2023, the adviser advertised performance returns that were experienced by a single investor in a private fund as the private fund’s performance even though the investor’s performance was at times significantly higher than the fund’s performance. According to the order, the performance disparity was due to certain successful IPO investments the fund had made that were credited to the investor’s capital account in greater proportion than other fund investors’ capital accounts because the other investors were unable to participate fully in the IPO investments due to investment restrictions under FINRA Rules 5130 and 5131.
The SEC found that the adviser willfully violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, which make it unlawful for any investment adviser to make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading to any investor or prospective investor, or to otherwise engage in any fraudulent, deceptive, or manipulative act with respect to any investor or prospective investor. The SEC also found that the adviser willfully violated Rule 206(4)-1 under the Advisers Act, known as the Marketing Rule, which, among other things, prohibits advisers from presenting misleading advertising and including or excluding performance results in a manner that is not fair and balanced.
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 $100,000. In agreeing to the settlement, the SEC considered the remedial acts promptly undertaken by the adviser and its 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 and April 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 Allegedly Misleading Performance Advertising
Newsletter/Bulletin
July 22, 2024
On June 14, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for disseminating allegedly misleading performance information of a private fund that it advised. The SEC alleged that from at least November 2021 through February 2023, the adviser advertised performance returns that were experienced by a single investor in a private fund as the private fund’s performance even though the investor’s performance was at times significantly higher than the fund’s performance. According to the order, the performance disparity was due to certain successful IPO investments the fund had made that were credited to the investor’s capital account in greater proportion than other fund investors’ capital accounts because the other investors were unable to participate fully in the IPO investments due to investment restrictions under FINRA Rules 5130 and 5131.
The SEC found that the adviser willfully violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, which make it unlawful for any investment adviser to make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading to any investor or prospective investor, or to otherwise engage in any fraudulent, deceptive, or manipulative act with respect to any investor or prospective investor. The SEC also found that the adviser willfully violated Rule 206(4)-1 under the Advisers Act, known as the Marketing Rule, which, among other things, prohibits advisers from presenting misleading advertising and including or excluding performance results in a manner that is not fair and balanced.
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 $100,000. In agreeing to the settlement, the SEC considered the remedial acts promptly undertaken by the adviser and its 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 and April 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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