On September 11, 2023, the SEC (Securities and Exchange Commission) disclosed the settlement of Administrative Proceedings against nine investment advisers. The proceedings refer to their practices of advertising hypothetical performance data without the necessary adoption or implementation of policies and procedures as prescribed by the Marketing Rule. Moreover, a couple of them did not keep mandatory copies of their advertisements. The affected investment advisers have been collectively penalized to the tune of $850,000 in fines. This was first reported by Dinsmore and Shohl LLP via JD Supra.
Many legal professionals, especially those in the financial space, are well aware of the SEC’s Marketing Rule. For the uninitiated, this regulation is meant to protect investors and maintain the integrity of the investment market. It outlines specific guidelines for making representations and issuing advertisements, particularly with respect to hypothetical performance data. The marketing rule requires firms under its jurisdiction to adopt and implement advertising policies and procedures that are in line with the standards set by the SEC.
The failure by the nine investment advisers to adhere to these protocols constituted a breach as per the SEC’s enforcement announcement. In addition to falling foul of the advertising principles, two of the firms did not retain necessary copies of their advertisements, compounding their contravention of regulatory requirements.
These enforcement actions highlight the serious consequences for non-compliance with regulations related to advertisements and public communications. This incident should serve as a reminder for legal professionals across the sector and encourage a rigid review of compliance procedures as to avoid costly sanctions and identify potential gaps in current advertising practices.
The legal world looks towards the SEC for maintaining a level playing field and defending investor interests. Legal and compliance teams in investment companies need to pay close attention to this enforcement action and ensure that their advertising policies and procedures are compliant and effective, to avoid the kind of punitive actions that these nine investment advisers have encountered.