SEC Makes 2nd Marketing Rule Charges Against 9 Investment Advisories

The Securities and Exchange Commission announced on Monday its second charges against investment advisers for violating the SEC’s new marketing rule.

The regulator charged nine investment advisories for advertising hypothetical performance to the general public on their websites without implementing policies and procedures required by the marketing rule passed in November 2022. The nine firms have agreed to settle the charges for penalties ranging from $50,000 through $175,000 for a combined total of $850,000 in penalties, without admitting or denying the SEC’s findings.

The announcement came after an August 21 announcement of the first charges under the rule, when Titan Global Capital Management USA LLC was charged more than $1 million in fines.

The firms, as listed by the SEC, are:

• Banorte Asset Management Inc.
• BTS Asset Management Inc.
• Elm Partners Management LLC
• Hansen and Associates Financial Group Inc.
• Linden Thomas Advisory Services LLC
• Macroclimate LLC
• McElhenny Sheffield Capital Management LLC
• MRA Advisory Group
• Trowbridge Capital Partners LLC

The nine firms agreed to be censured, cease and desist from violating the charged provisions, comply with undertakings not to advertise hypothetical performance without following policies and procedures and pay penalties ranging from $50,000 to $175,000.

Under the marketing rule, registered investment advisers cannot include any hypothetical performance in their advertisements unless they have sought to ensure that the performance is “relevant to the likely financial situation and investment objectives of the intended audience of the advertisement,” the SEC wrote in the announcement.

Each firm allegedly advertised hypothetical performance to mass audiences on their websites without having the required policies and procedures, and two of the advisers, Macroclimate LLC and MRA Advisory Group, failed to maintain required copies of their advertisements.

“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a statement. “It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the rule. Until that is the case, we will remain vigilant and continue our ongoing sweep.”

The SEC broadened the rule and gave further detail in June of how advisories can comply.