SEC Sweep into Marketing Rule Violations Results in Charges Against Nine Investment Advisers

The Securities and Exchange Commission (SEC) has announced charges against nine registered investment advisers for promoting hypothetical performance on their websites without implementing the necessary policies and procedures required by the Marketing Rule. All nine firms have agreed to settle the charges and collectively pay $850,000 in penalties.

The firms involved are:

1. Banorte Asset Management Inc.
2. BTS Asset Management Inc.
3. Elm Partners Management LLC
4. Hansen and Associates Financial Group Inc
5. Linden Thomas Advisory Services LLC
6. Macroclimate LLC
7. McElhenny Sheffield Capital Management LLC
8. MRA Advisory Group
9. Trowbridge Capital Partners LLC

Registered investment advisers are prohibited from using hypothetical performance in their advertisements unless they have established and implemented policies and procedures aimed at ensuring the relevance of the hypothetical performance to the financial situation and investment objectives of the intended audience.

The SEC found that each of the charged firms advertised hypothetical performance to a broad audience on their websites without having the required policies and procedures in place. Additionally, two of the advisers, Macroclimate LLC and MRA Advisory Group, failed to maintain copies of their advertisements as required.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of advisers implementing policies and procedures to ensure compliance with the Marketing Rule, particularly concerning hypothetical performance advertisements.

Without admitting or denying the SEC’s findings, the charged firms have agreed to be censured, cease violating the charged provisions, comply with undertakings not to advertise hypothetical performance without the requisite policies and procedures, and pay civil penalties ranging from $50,000 to $175,000.

The SEC continues to investigate potential Marketing Rule violations and remains vigilant in enforcing compliance with the rule, including requirements for hypothetical performance advertisements. The investigation team includes members from various divisions of the SEC, including Enforcement, Investigative and Market Analytics, Examinations, Investment Management, and Economic and Risk Analysis.