April 15, 2024
What happened?
On April 12, 2024, the Securities and Exchange Commission (SEC) announced that it settled charges against five registered investment advisers for Marketing Rule violations. GeaSphere LLC, Bradesco Global Advisors Inc., Credicorp Capital Advisors LLC, InSight Securities Inc., and Monex Asset Management Inc. all agreed to pay a combined $200,000 to settle the SEC’s charges.
The SEC’s orders found that the five advisory 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.” This violation is a breach of the Marketing Rule, highlighting the importance of its provisions.
The release stated that Bradesco, Credicorp, InSight and Monex received reduced penalties because of the corrective steps they took in advance of being contacted by the SEC staff. GeaSphere, however, received greater penalties after violating other regulatory requirements. This included “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.” The order also found that GeaSphere committed recordkeeping and compliance violations as well as offering misleading statements about its performance to a registered investment company client.
GeaSphere incurred the greatest penalty of $100,000. Bradesco, Credicorp, InSight, and Monex all agreed to pay civil penalties ranging from $20,000 to $30,000.
What does this mean for me?
This is the second round of SEC enforcements based on the new Marketing Rule since nine advisory firms back in September of 2023. The SEC indicated both sets of enforcements are part of an ongoing targeted sweep concerning the new Marketing Rule. Like the first cases, these new cases are all based on violations in the use of hypothetical performance in marketing. If your compliance program is falling short on implementing new Marketing Rule policies, especially around the use of hypothetical performance, make necessary changes now. These cases are a good reminder that firms that take corrective action before being contacted by the Commission can benefit from it.
Fairview provides comprehensive and ongoing compliance services, including comprehensive marketing and advertising review and complete examination support. Contact us if you have any questions or if you would like to speak with one of our regulatory experts.
