Serving as another warning that it's past time to begin complying with its amended marketing rule, the Securities and Exchange Commission (SEC) has settled charges against five registered investment advisers for what the Commission deemed as misleading advertising by the firms.
According to the April 12 announcement, all five firms (listed below) have agreed to settle the SEC’s charges and to pay $200,000 in combined penalties.
- GeaSphere LLC
- Bradesco Global Advisors Inc.
- Credicorp Capital Advisors LLC
- InSight Securities Inc.
- Monex Asset Management Inc.
The SEC’s orders found that the five firms advertised hypothetical performance to the general public on their websites without adopting and implementing policies and procedures “reasonably designed” to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience, as required by the marketing rule.
The SEC notes that Bradesco, Credicorp, InSight, and Monex received reduced penalties because of the corrective steps they undertook in advance of being contacted by the Commission’s staff.
According to the order, GeaSphere also violated other regulatory requirements, including by making false and misleading statements in advertisements, advertising misleading model performance, being unable to substantiate performance shown in its advertisements, and failing to enter into written agreements with people it compensated for endorsements.
The order further revealed that GeaSphere apparently committed recordkeeping and compliance violations and made misleading statements about its performance to a registered investment company client and that the misleading statements were included in the client’s prospectus filed with the Commission.
“The Marketing Rule’s provisions are crucial to protecting investors from misleading advertising claims,” Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement. “Today’s actions show that we will continue to employ targeted initiatives to ensure that investment advisers fully comply with their obligations under the rule. They also serve as a reminder of the benefits to firms that take corrective steps before being contacted by Commission staff.”
Without admitting or denying the SEC’s findings, all the firms consented to the entry of orders finding that they violated the Investment Advisers Act of 1940 and ordering them to be censured, cease and desist from violating the charged provisions, and comply with certain undertakings.
GeaSphere agreed to pay a civil penalty of $100,000. Bradesco, Credicorp, InSight, and Monex agreed to pay civil penalties ranging from $20,000 to $30,000, which reflected certain corrective steps taken by each of these firms prior to being contacted by the Commission staff.
Compliance Sweeps
This is the second set of multiple cases that the Commission has brought as part of an ongoing targeted sweep concerning marketing rule violations after charging nine advisory firms in September 2023. Like today’s announcement, the SEC found that each of the charged firms advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures. Each of the firms settled the charges, paying combined civil penalties of $850,000.
Similarly, FinTech investment adviser Titan Global Capital Management USA LLC agreed in August to pay more than $1 million combined in a civil penalty, disgorgement, and prejudgment interest to settle charges that it violated the marketing rule.
The SEC in December 2020 voted to modernize rules governing investment adviser advertisements and solicitor compensation under the Investment Advisers Act. To give advisers a transition period, advisory firms had until November 2022 to come into full compliance with the rule.
