Investment Adviser Settles SEC Charges for Disclosure Failures on Tax-Loss Harvesting Service

An investment adviser settled SEC charges for failing to disclose to clients deficiencies in the adviser's automated tax-loss harvesting service ("TLH").

In an Order, the SEC stated that the investment adviser offered an automated service that reviewed clients’ accounts to identify harvesting opportunities to reduce taxes. The SEC found that the investment adviser misstated or omitted information regarding the TLH service by (i) changing the scanning frequency of client accounts from daily to alternating days, (ii) failing to disclose constraints to clients who chose to use a third-party portfolio strategy and (iii) withholding information regarding computer coding errors that prevented the TLH service from scanning client accounts. As a result, the investment adviser caused a $4 million loss in potential tax benefits for approximately 25,000 client accounts.

The SEC concluded that the investment adviser violated (i) Advisers Act Section 206(2) ("Prohibited transactions by investment advisers") and Rule 206(4)-7 ("Compliance procedures and practices") thereunder and (ii) Advisers Act Section 204 ("Reports by investment advisers") and Rule 204-2(a)(10) ("Books and records to be maintained by investment advisers") thereunder.

To settle the charges, the investment adviser agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a civil penalty of $9,000,000.

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