SEC Settles Charges with Nine Advisers in Marketing Rule Sweep

Seward & Kissel LLP

Seward & Kissel LLP

Who may be interested: Investment Advisers.

Quick Take: The SEC recently settled charges with nine investment advisers related to their use of hypothetical performance information on their websites without adopting or implementing policies and procedures required by Rule 206(4)-1 under the Advisers Act (the “Marketing Rule”). The SEC has previously indicated that it would be intensely focused on advisers’ compliance with the Marketing Rule following its November 2022 compliance date.  This enforcement action sweep comes shortly after the SEC’s initial enforcement action under the Marketing Rule which also focused on the use of hypothetical performance. This latest sweep, coupled with the prior enforcement action, demonstrates that the SEC intends to aggressively pursue alleged violations of the Marketing Rule.

The Marketing Rule requires advisers using hypothetical performance, among other things, to adopt and implement 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. The SEC’s orders found that the advisers charged in the enforcement actions advertised hypothetical performance without having adopted or implemented applicable policies and procedures. In addition, two of the advisers involved in the sweep failed to keep records of the advertisements as required by Rule 204-2 under the Advisers Act (the “Books and Records Rule”).

As a result of the conduct described above, the SEC’s orders found that the advisers violated the Marketing Rule and for two of the advisers, the Books and Records Rule as well. Without admitting or denying the findings in their respective SEC order, each of the nine advisers agreed to a cease-and-desist order, a censure, and to pay civil penalties which, collectively among the nine advisers, totaled $850,000.

For a Discussion of the SEC’s initial Marketing Rule enforcement action, see S&K’s blog post here.

The SEC Press Release can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Seward & Kissel LLP | Attorney Advertising

Written by:

Seward & Kissel LLP

Seward & Kissel LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide