The Securities and Exchange Commission announced today that five more registered investment advisors have settled charges that they advertised aggressive and inaccurate hypothetical performance to mass audiences in violation of securities rules.
In the second in a series of charges against firms for violating the SEC’s marketing rule, the five firms have agreed to settle the charges and have agreed to pay $200,000 in combined penalties, the SEC said. Fourteen RIAs have been charged to date as part of the SEC’s ongoing regulatory sweep centered around compliance with the agency’s marketing rule, which was updated in December, 2020.
The five advisory firms, which offer wealth management services, run portfolios and, in the case of GeaSphere, its own ETF, were listed as the following:
• GeaSphere LLC.
• Bradesco Global Advisors Inc.
• Credicorp Capital Advisors LLC.
• InSight Securities Inc.
• Monex Asset Management Inc.
Without admitting or denying the SEC’s findings, all of the firms consented to the entry of orders finding that they violated the Investment Advisers Act of 1940 and ordering them to be censured, cease and desist from violating the charged provisions, and comply with certain undertakings, the SEC said.
GeaSphere agreed to pay a civil penalty of $100,000. Bradesco, Credicorp, InSight, and Monex agreed to pay civil penalties ranging from $20,000 to $30,000, which reflected certain corrective steps taken by each of these firms prior to being contacted by the SEC, the agency said.
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,” the SEC said.
“The Marketing Rule’s provisions are crucial to protecting investors from misleading advertising claims,” said Corey Schuster, co-chief of the SEC Enforcement Division’s Asset Management Unit.
“Today’s actions show that we will continue to employ targeted initiatives to ensure that investment advisers fully comply with their obligations under the rule," Schuster said. "They also serve as a reminder of the benefits to firms that take corrective steps before being contacted by Commission staff.”
According to the order, GeaSphere also violated other regulatory requirements, including “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 SEC order also found that GeaSphere 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 SEC, the SEC said.
Bradesco, Credicorp, InSight and Monex received reduced penalties “because of the corrective steps they undertook in advance of being contacted by the SEC staff,” the regulator said.
This is the second enforcement action the SEC has undertaken against RIAs as part of an ongoing targeted sweep concerning Marketing Rule violations. The agency charged nine advisory firms in September 2023. RIAs “are prohibited from, among other things, including hypothetical performance in their advertisements unless…performance is relevant to the likely financial situation and investment objectives of the advertisement’s intended audience,” the SEC said at the time.