In a recent development reported by JD Supra, it has come to light that nine investment advice firms find themselves in legal hot water, facing charges by the Securities and Exchange Commission (SEC). The alleged infractions involve violations of the Advisers Act Rule 206(4)-1, or the Marketing Rule, and recordkeeping requirements relating to advertisement dissemination.
The SEC’s main bone of contention revolves around the firms’ usage of hypothetical performance requirements, as dictated by the said Marketing Rule. In conjunction, they are also held accountable for not retaining copies of each advertisement they rolled out, which, under the law, is a requisite recordkeeping requirement.
Dated September 11, 2023, the action by the SEC underscores the combined penalties that the charged firms are expected to pay, amounting to a hefty sum of US$850,000. This serves as a strong reinforcement of the SEC’s determination to leave no stone unturned when it comes to examining compliance with federal securities laws, particularly concerning the use of hypothetical performance in marketing materials and advertisements’ recordkeeping. Thus, acting as a stern wake-up call for such firms and the broader industry.
The legal analysis provided by K&L Gates LLP, who covered this development, further makes this clear that the SEC isn’t going to show leniency when it comes to violations of this nature.
As the story unfolds, this sends a clear message to firms within the industry of the need for increased compliance checks, checking and re-checking their marketing and recordkeeping practices. Firms looking to avoid legal repercussions of such nature must ensure adherence to the best practices and regulatory laws imposed by the SEC, or otherwise be prepared to face stringent penalties.