Investment Adviser Settles SEC Charges for Misleading Account Statements
Commentary by Rachael Hashmall
A Florida-based investment adviser and its principal settled SEC charges for making misleading statements to advisory clients about the management and performance of adviser-managed accounts.
According to the Order, the adviser placed most clients in accounts that followed internal adviser-developed models, many of which were similar to third-party money managers’ strategies. The SEC found that the adviser failed to clearly differentiate between their own models and the third-party strategies. The SEC also found that the adviser included historical performance data of third-party strategies in their own communications without clarifying that the adviser’s own performance differed. The SEC found that these written communications were misleading.
As a result, the SEC determined that the adviser violated Section 206(2) of the Advisers Act ("Prohibited transactions by investment advisers").
To settle the charges, the adviser and its principal agreed to (i) a censure and (ii) cease-and-desist from committing future violations of Advisers Act Section 206(2). The adviser and its principal agreed to pay civil money penalties in the amounts of $100,000 and $50,000 respectively.
Commentary
The SEC’s enforcement action against the adviser here underscores the importance of transparency and accurate representation in any communications sent to advisory clients. Investment advisers must provide clear and honest communication about investment strategies and performance history. Following the SEC’s recent wave of enforcements and new Risk Alert, this enforcement is further indication of the SEC’s heightened focus on Marketing Rule and similar violations. (See e.g., Investment Advisers Settle Charges for Marketing Violations and Investment Adviser Settles Charges for False Advertisements.)
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