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SEC Brings First Enforcement Action Under Amended Advisers Act Marketing Rule

September 05, 2023
Client Alert
The Securities and Exchange Commission (SEC) recently brought and settled its first administrative proceeding (Proceeding) against a registered investment adviser for violating Rule 206(4)-1 under the Investment Advisers Act of 1940, as amended on Dec. 22, 2020 (the Amended Marketing Rule).1 This Adviser Alert provides a general overview of the Proceeding, including a discussion of the relevant facts, the applicable provisions of the Amended Marketing Rule and the SEC’s findings. It then suggests a few practical takeaways for registered investment advisers to consider when preparing advertising materials under the Amended Marketing Rule.

The Proceeding
The Relevant Facts
The SEC order instituting and settling the Proceeding (Order) states that the respondent investment adviser (Respondent) provides personalized investment advice to retail investors through a number of different traditional and nontraditional managed account strategies, including a cryptocurrency strategy (the Crypto Strategy).

The Respondent elected to comply with the Amended Marketing Rule beginning in June 2021.2 It then posted advertisements about the Crypto Strategy on its website (Crypto Strategy Advertisements), which, at certain times, presented an annualized return for the Crypto Strategy of 2,700% (Annualized Return). The Annualized Return was derived from the 21% return of a hypothetical account over a three-week period. The Respondent then assumed that this hypothetical account would continue to generate this same 21% return every three weeks for the remainder of the year.

The Crypto Strategy Advertisements did not provide any additional substantive information about the Annualized Return on the webpage where it was presented. They simply disclosed the Annualized Return figure and identified the Crypto Strategy as the relevant mandate. In addition, they disclosed the Crypto Strategy’s inception date and number of coin holdings. Below these disclosures, the Crypto Strategy Advertisements also provided two embedded hyperlinks generically labeled “Disclosures” and “Track Record.” Read the full article here.


1 In the Matter of Titan Global Capital Management USA LLC, Release No. IA-6380 (Aug. 21, 2023) The SEC also brought this Proceeding for violations of the Advisers Act unrelated to the marketing of advisory services. This Adviser Alert does not address those unrelated violations.
2 Firms were permitted to voluntarily comply with the Amended Marketing Rule beginning on or after May 4, 2021. They were required to comply with the Amended Marketing Rule beginning on Nov. 4, 2022.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

Copyright © 2023 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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