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SEC Broadens Marketing Rule Crackdown; Fines Nine Firms for Violations

SEC Broadens Marketing Rule Crackdown; Fines Nine Firms for Violations. Adviser, broker, broker-dealer, financial services, investment adviser, RIA, SEC

The Securities and Exchange Commission announced charges against nine registered investment advisers for advertising hypothetical performance to the general public on their websites without adopting and/or implementing policies and procedures required by the marketing rule.

All nine firms have agreed to settle the SEC’s charges and to pay $850,000 in combined penalties.

The firms are:

  • Banorte Asset Management Inc.
  • BTS Asset Management Inc.
  • Elm Partners Management LLC
  • Hansen and Associates Financial Group Inc
  • Linden Thomas Advisory Services LLC
  • Macroclimate LLC
  • McElhenny Sheffield Capital Management LLC
  • MRA Advisory Group
  • Trowbridge Capital Partners LLC

The SEC says registered investment advisers are prohibited from including any hypothetical performance in their advertisements unless they have adopted and implemented 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 find that each of the charged firms advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures. In addition, two of the advisers, Macroclimate LLC and MRA Advisory Group, failed to maintain required copies of their advertisements.

“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” said Gurbir S. Grewal, director of the SEC’s division of enforcement. “It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the rule.  Until that is the case, we will remain vigilant and continue our ongoing sweep to ensure that investment advisers comply with the Marketing Rule, including the requirements for hypothetical performance advertisements.”

Without admitting or denying the SEC’s findings, the charged firms agreed to be censured, cease and desist from violating the charged provisions, comply with undertakings not to advertise hypothetical performance without having the requisite policies and procedures, and pay civil penalties ranging from $50,000 to $175,000.

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