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Compliance August 21, 2023
SEC Fines Fintech Advisory Titan in 1st Marketing Rule Charge
The regulator calls the charges a ‘warning’ to investment advisers about how they can market offerings.
Reported by Alex Ortolani
The Securities and Exchange Commission on Monday announced a fine of more than $1 million issued to financial technology investment advisory Titan Global Capital Management USA LLC for using misleading hypothetical performance metrics in its advertisements.
The SEC’s charges are the first under its new marketing rule, which went into effect in November 2022 and has since been broadened and amended. Designed to prevent advisers from misleading clients, the rule expanded the definition of advertising when it comes to investments and added disclosure requirements for marketing materials.
In Monday’s order, the SEC charged Titan with “multiple compliance failures” that led to misleading disclosures about the custody of clients’ crypto assets, the use of improper “hedge clauses” in client agreements, the unauthorized use of client signatures and the failure to adopt policies concerning crypto asset trading by employees. The SEC noted that Titan consented to the SEC’s order finding that it violated the Investment Advisers Act of 1940 but did not admit or deny the findings.
The New York-based firm agreed to a cease-and-desist order, to a censure and to pay $192,454 in disgorgement, prejudgment interest of $7,598 and an $850,000 civil penalty that will be distributed to affected clients, according to the SEC.
“When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors,” Osman Nawaz, chief of the SEC enforcement division’s complex financial instruments unit, said in a statement. “Titan’s advertisements and disclosures painted a misleading picture of certain of its strategies for investors. This action serves as a warning for all advisers to ensure compliance.”
The SEC alleged in the order that Titan made misleading statements on its website and mobile app regarding hypothetical performance, including an advertisement of annualized performance results as high as 2,700% for its cryptocurrency offering. The regulator found the advertisements misleading because they failed to include the fact, among others, that the performance cited was based on just three weeks of outcomes.
The order also found that Titan violated the marketing rule by advertising hypothetical performance metrics without having “adopted and implemented required policies and procedures or taking other steps required by the Commission’s marketing rule.”
The SEC’s order further found that Titan:
- made conflicting disclosures to clients about how Titan custodied crypto assets;
- included in its client advisory agreements liability disclaimer language, or “hedge clauses,” that created the false impression that clients had waived non-waivable causes of action against Titan; and
- contrary to representations, failed to adopt policies and procedures concerning employee personal trading in crypto assets.