Last week the SEC announced that it had settled charges against five more registered investment advisers for Marketing Rule violations, resulting in $200,000 in combined penalties (with one firm making up half the total on its own). This latest round of cases resulted from an ongoing targeted sweep concerning the Marketing Rule, and it follows another group of cases from September 2023 against nine other advisory firms.

In the present actions, the SEC’s orders found that the five firms advertised hypothetical performance to the general public on their websites without adopting and implementing policies and procedures reasonably designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience, as required by the Marketing Rule. Four of the five firms received reduced penalties because of the corrective steps they undertook in advance of being contacted by the SEC staff.

According to the SEC’s order, the fifth firm also violated other regulatory requirements, including by making false and misleading statements in advertisements, advertising misleading model performance, being unable to substantiate performance shown in its advertisements, and failing to enter into written agreements with people it compensated for endorsements. In addition, the SEC also found that the firm committed recordkeeping and compliance violations and made misleading statements about its performance to a registered investment company client and that the misleading statements were included in the client’s prospectus filed with the SEC.

Compliance Risk Concepts believes that the best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of actions by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam.

For more information, please contact:

Mitch Avnet | p. (646) 346-2468 | mavnet@compliance-risk.com

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One of the primary drivers for Compliance Risk Concepts (CRC) is to raise the awareness level and thought process related to real world compliance and risk issues in a “down to earth,” realistic and relatable way. Our goal is to help our clients, prospects and readers decipher the challenges faced by compliance and risk professionals across every industry vertical by providing “plain English” perspectives and views. While you may not view our approach as “conventional” – it’s ok – that’s not what we aim to be nor what we are all about. We seek to differentiate ourselves through the delivery of an innovative service / solution model, predicated on practical guidance coupled with achievable outcomes. Although it is early in our evolution, we are seeing strong signs that our vision and strategy are resonating with our clients and service partners. As we continue to grow and evolve as a company, I wanted to personally thank all of you for the continued support, enthusiasm and confidence demonstrated toward CRC and the brand we are building within the industry. As always, we'd love to hear how YOU think we are doing. Feel free to suggest topics or issues you would like to see discussed in future blogs. Click here to contact me now. Many thanks, Mitch Avnet Managing Partner Compliance Risk Concepts photo: Mark Tassoni

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