On April 12, 2024, the Securities and Exchange Commission announced settled charges against five registered investment advisers for violations of the Marketing Rule. The firms have agreed to settle and pay a combined $200,000 in penalties, as well as cease and desist from violating the charged provisions, and to implement corrective actions to their compliance policies and procedures.
According to the order, 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. One of the charged firms also violated the Marketing Rule by making false and misleading statements in advertisements, advertising misleading model performance, being unable to substantiate performance shown in advertisements, and failing to enter into written agreements with people it compensated for endorsements. The order further finds that one of the charged advisers 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 Commission.
As a reminder, the Marketing Rule covers the definition of what constitutes an “advertisement,” requirements for testimonials or endorsements (including promoters), use of third-party ratings, presentation and disclosure requirements for performance information, and books and records requirements related to advertisements.
