SEC Charges FinTech Investment Adviser Titan for Misrepresenting Hypothetical Performance of Investments and other Violations

The Securities and Exchange Commission (SEC) has officially brought forth charges against Titan Global Capital Management USA LLC, a FinTech investment advisor based in New York. The charges pertain to the firm’s utilization of hypothetical performance metrics in its advertisements, which have been deemed misleading. Additionally, Titan has been charged with a series of compliance failures, leading to misleading disclosures concerning the custody of clients’ cryptocurrency assets, the use of inappropriate “hedge clauses” in client agreements, the unauthorized utilization of client signatures, and the absence of policies regarding employee crypto asset trading.

According to the SEC’s order, during the period spanning from August 2021 to October 2022, Titan, known for offering various complex strategies to retail investors through its mobile trading application, disseminated deceptive statements on its website regarding hypothetical performance. Notably, the firm advertised “annualized” performance figures reaching as high as 2,700 percent for its Titan Crypto strategy. However, the SEC contends that these advertisements omitted crucial details, such as the fact that the hypothetical performance projections assumed the strategy’s performance over its initial three weeks would be sustained for a full year. Moreover, the order concludes that Titan breached the marketing rule by advertising hypothetical performance metrics without implementing necessary policies, procedures, and other stipulations required by the Commission’s marketing rule amendments from December 2020.

Furthermore, the SEC’s order reveals that Titan engaged in a series of transgressions, including conflicting disclosures to clients concerning the custody of crypto assets, the inclusion of liability disclaimer language within client advisory agreements that inaccurately suggested clients had waived non-waivable legal claims against Titan, and the failure to develop policies and procedures related to personal crypto asset trading by its employees. The order also notes that Titan self-reported to the SEC staff about its failure to ensure the acquisition of client signatures for specific types of transactions in client accounts, ultimately agreeing to settle the associated charges.

Osman Nawaz, Chief of Enforcement’s Complex Financial Instruments Unit, commented, “When offering and marketing complex strategies, investment advisers must ensure the accuracy of disclosures made to existing and prospective investors. The Commission amended the marketing rule to allow for the use of hypothetical performance metrics but only if advisers comply with requirements reasonably designed to prevent fraud. 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.”

In response to the investigation, Titan cooperated and consented to the SEC’s order, which acknowledges that the firm violated the Advisers Act. While not admitting or denying the SEC’s findings, Titan agreed to a cease-and-desist order, censure, as well as the payment of $192,454 in disgorgement, along with prejudgment interest and a $850,000 civil penalty. The civil penalty will be distributed to the affected clients.