SEC, Investment Adviser Reach Settlement Over Marketing Rule Violations

The Securities and Exchange Commission has reached a settlement with a registered investment adviser that was accused of Marketing Rule violations for improperly advertising hypothetical performance information on its website, as Vedder Price writes on its website.

The August 2024 settlement illustrates the SEC’s continued focus on violations of the Marketing Rule under the Investment Advisers Act of 1940, the law firm writes.

The SEC alleged that the adviser posted a quarterly performance report on its website which included hypothetical performance information for portfolios it offered to clients. The hypothetical was derived from model portfolios.

From November 2022 to December 2023, the adviser allegedly posted quarterly performance reports on its public site that included hypothetical performance data based on model portfolios. This information was shared with a broad audience instead of being tailored to a specific group, which raised concerns.

The SEC found that the adviser willfully violated Section 206(4) and Rule 206(4)-1(d) of the Advisers Act. These rules require investment advisers to have policies that ensure any hypothetical performance information is relevant to the financial situations and investment goals of the audience it targets.

As part of the settlement, the adviser agreed to stop these violations, received a censure, and will pay a $430,000 civil penalty. The SEC noted the adviser’s cooperation during the investigation. This settlement is part of the SEC’s ongoing focus on enforcing the Marketing Rule, especially given similar actions against other advisers in recent months.

VedderPrice cites several other enforcements of the same rule, including one in June 2024, in which the SEC alleged an adviser advertised misleading performance returns for a private fund. The advertised performance returns were based of the returns of just one investor.