Nine Investment Firms Fined By The SEC For Marketing Rule Violations
Government/Regulatory Enforcement
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  • Nine Investment Firms Fined By The SEC For Marketing Rule Violations

    On September 11, 2023, the U.S. Securities and Exchange Commission announced settled enforcement actions against nine separate investment advisory firms for alleged marketing rule violations, assessing a total of $850,000 in combined penalties.  In each case, the SEC alleged that the firms improperly provided hypothetical performance information on their firm websites without following the requirements of the marketing rule.

    Under the SEC’s marketing rule, among other things, investment firms seeking to disclose hypothetical performance information are required to implement policies and procedures to ensure that any such advertised performance is reflective and relevant to the financial situation and investment objectives of the intended audiences.

    According to the SEC, by placing hypothetical performance information on their websites (where the SEC claimed it was accessible to “mass audiences”) the nine firms at issue violated the marketing rule.  Indeed, the SEC claimed that the placement of the information gave it “attention-grabbing power,” producing an elevated risk for potential investors whose financial circumstances and investment purposes may not reflect the advertised investment strategy.  The SEC stressed that the advertisements consisted of performance derived from model portfolios and were disseminated to the general public rather than to a specific intended audience, and also that two of the investment firms had failed to maintain copies of their advertisements.

    In agreeing to the settlements, the nine investment advisory firms neither admitted nor denied any wrongdoing.  However, each agreed to be censured, to cease and desist from future behavior in violation of the rule, and to only advertise hypothetical performance with implemented policies and procedures.  The investment firms will pay penalties ranging from $50,000 to $175,000.  (For context, we note that the managed assets of the firms ranged from $42 million to $1.28 billion).

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