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SEC Fines Boston RIA $1 Million in Ongoing Marketing Rule Crackdown

SEC Fines Boston RIA $1 Million in Ongoing Marketing Rule Crackdown. Broker-dealer, brokerage, financial services, RIA, registered investment adviser, SEC, Securities and Exchange Commission, marketing rule
SEC Fines Boston RIA $1 Million in Ongoing Marketing Rule Crackdown. Broker-dealer, brokerage, financial services, RIA, registered investment adviser, SEC, Securities and Exchange Commission, marketing rule

The Securities and Exchange Commission has fined Wellesley Asset Management, an RIA based in a suburb of Boston, in its ongoing crackdown on marketing rule violations.

Without admitting to or denying the SEC’s findings, the RIA consented to a censure and $1 million fine due to material misstatements and omissions in marketing materials, directly and indirectly, to certain of its advisory clients and prospective clients. The SEC says the materials specifically were concerning an index (the “WAM Index”) that Wellesley Asset Management created in January 2013 to depict the performance of its convertible bond investment strategy from January 2000 forward.

The firm used WAM Index performance graphs in advertisements from February 2015 to March 2022, a period when the RIA’s investment strategy focused exclusively on convertible bonds. The SEC says the written advertisements, however, “failed to fully and fairly disclose the methodologies it used to construct the index.”

Among other things, Wellesley at times failed to adequately disclose that the WAM Index included hypothetical performance. The firm also presented the WAM Index’s performance during at least three client webinars and misstated that the index represented composite returns from its convertible bond strategy.

The SEC says Wellesley Asset Management voluntarily discontinued the use of the WAM index in March 2022 in advertising the bond strategy and is currently in the process of terminating its contract with the index’s agent so that it would cease to exist. The firm has also maintained outside legal and compliance professionals to conduct a review of its own internal marketing materials related to the advertising of investment strategies and meetings with clients.

Earlier this month, the SEC announced charges against nine registered investment advisers for advertising hypothetical performance to the general public, violating the marketing rule.

The regulator also fined Titan Global Capital Management USA LLC, a New York-based FinTech investment adviser in August 2023, for “using hypothetical performance metrics in advertisements that were misleading.”

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