Home Alts News SEC Fines NY Firm More than $1 Million in First Marketing Rule...

SEC Fines NY Firm More than $1 Million in First Marketing Rule Enforcement Action

The Securities and Exchange Commission announced charges against Titan Global Capital Management USA LLC, a New York-based FinTech investment adviser, for “using hypothetical performance metrics in advertisements that were misleading.”

The SEC also charged Titan with multiple compliance failures that led to misleading disclosures about custody of clients’ crypto assets, the use of improper “hedge clauses” in client agreements, the unauthorized use of client signatures and the failure to adopt policies concerning crypto asset trading by employees.

According to the SEC’s order, for a period ranging from August 2021 to October 2022, Titan, which offers multiple complex strategies to retail investors through its mobile trading app, made misleading statements on its website regarding hypothetical performance, including by advertising “annualized” performance results as high as 2,700 percent for its Titan Crypto strategy.

The order alleges that Titan’s advertisements were misleading because they failed to include material information, for example, that the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year. The order also finds that Titan violated the marketing rule by advertising hypothetical performance metrics without having adopted and implemented required policies and procedures or taking other steps required by the Commission’s marketing rule, which was amended in December 2020.

The SEC’s order further finds that Titan made conflicting disclosures to clients about how Titan custodied crypto assets, included in its client advisory agreements liability disclaimer language that created the false impression that clients had waived non-waivable causes of action against Titan and contrary to representations, failed to adopt policies and procedures concerning employee personal trading in crypto assets. The order also states that Titan self-reported to the SEC staff that it failed to ensure that client signatures were obtained for certain types of transactions in client accounts and agreed to settle related charges.

“When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors. The Commission amended the marketing rule to allow for the use of hypothetical performance metrics but only if advisers comply with requirements reasonably designed to prevent fraud,” said Osman Nawaz, chief of enforcement’s complex financial instruments unit. “Titan’s advertisements and disclosures painted a misleading picture of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance.”

Titan cooperated with the investigation and consented to the entry of the SEC’s order finding that it violated the Advisers Act. Without admitting or denying the SEC’s findings, Titan agreed to a cease-and-desist order, a censure, and to pay $192,454 in disgorgement, prejudgment interest and an $850,000 civil penalty that will be distributed to affected clients.

Click here to visit The DI Wire directory page.