The U.S. Securities and Exchange Commission has charged Titan Global Capital Management over $1 million for violating the SEC’s new marketing rule. The New York-based RIA was charged with misrepresenting hypothetical performance metrics in advertising when it promoted a crypto investment strategy with returns as high as 2,700%. Hypothetical performance metrics are allowed under the new marketing rule but, the company failed to disclose to investors that the returns were based off a three-week projected return rather than the implied one-year return.
The SEC also charged the company with:
- Failure to obtain client signatures for certain transactions;
- Misleading client advisory agreements that contained hedge clauses and implied clients waived non-waivable causes of action against the company; and
- Failing to implement compliance policies and procedures regarding employee trading.
Titan Global was fined $192,454 in disgorgement, and $850,000 civil penalty for the violations.
The company is the first to face SEC enforcement actions under the new Marketing Rule, setting the precedence that the SEC is paying close attention to advisers who disregard or fail to meet the requirements of the investment adviser Marketing Rule.
The SEC holds advisers accountable to their fiduciary duty to their investors. They must ensure that their disclosures are accurate and not misleading. The investment adviser Marketing Rule amendments permit the use of hypothetical performance but only if advisers meet disclosure requirements and do not mislead existing and potential clients.
Advisers face an ever-evolving wheel of rules and regulations, and may run into challenges meeting compliance requirements, especially when it comes to the new Marketing rule.
When communicating with clients and investors, the legal team at Jacko Law Group advises,
“Can’t support it? Don’t say it.”
As Chief of the SEC Enforcement’s Complex Financial Instruments Unit, Osman Nawaz stated in the SEC’s News Release on the matter, “This action serves as a warning for all advisers to ensure compliance.”
The securities regulatory and compliance counsel at Jacko Law Group works with advisers to ensure they comply with the investment adviser Marketing Rule requirements. If you have questions about implementing internal controls for the investment adviser Marketing Rule or other compliance program areas, we encourage you to contact us here, or call us at 619.298.2880 for a consultation.