Investment Adviser Fined for Misleading Ads Based on Hypothetical Performance

An investment adviser settled charges for making misleading statements in advertisements based on hypothetical performance.

In an Order, the SEC stated that the "FinTech investment adviser that operates a technology investment platform offering multiple investment strategies," advertised hypothetical performance without having adopted policies and procedures in violation of the requirements of Rule 206(4)-1 ("Investment Adviser Marketing"). The SEC stated that the adviser claimed to produce a 2,700 percent return, but failed to disclose that the return was based on the performance of a hypothetical account and was based on only three weeks of performance. In addition, the SEC said the adviser included improper hedge language (disclaiming liability) in its client agreements and provided incomplete information as to how clients' assets were custodied.

The SEC found that the adviser violated Advisers Act Sections 206(2) and 206(4) ("Prohibited transactions by investment advisers") and Rules 206(4)-1 and 206(4)-7 ("Compliance procedures and practices") 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 disgorgement of $192,454, prejudgment interest of $7,598 and a civil monetary penalty of $850,000.